evaporation loss and taxes?

[Friday]

How does one account for evaporation losses in book keeping and tax payment?

I guess what I'm getting at is say I produce 50 gallons of 125 proof spirits. I take that 50 gallons and barrel them for 5 years. For the sake of this discussion I lose 5 proof per year, so at the end of five years I have 50 gallons of 100 proof.

How would I account for the 20% loss? I didn't destroy it and I didn't take it out of inventory. Also say I record 125 proof going in and a year latter the TTB stops by to check and it now at 120 proof, how would that be dealt with?

Would I need to make periodic adjustments in the records? If so what would be the appropriate interval?

Do I pay taxes on the 125 poof that went into the barrel or the 100 proof that comes out?

If this subject has been addressed elsewhere please point it out.

Thanks, Friday

[StGeorgeSpirits]

By law, you need to physically gauge your barrels at the end of every calendar quarter. At that time you will record the loss on your storage operational report. The TTB knows there will be a loss from evaporation. You will also record losses at any other time of gauging - such as when transferring into or out of barrels. You do not need to reproof every quarter - calculate based on the change in wine gallons at the original barreled proof. You will then reproof when transferring from storage - either out of your bond or to processing and record any additional losses at that time.

-Lucy

[Friday]

Thank you Lucy.

[Scott @ Twenty2Vodka]

at the TTB expo a couple years ago, an agent explained that losses are common and understood, so much to the point that they expect to see them if/when you are audited. For example, if you begin with 100 proof gallons and transfer to a new tank exactly 100 proof gallons, they know that you didn't properly gauge and that your other calcs are suspect.

[JohninWV]

Like Scott said.....

I know some folks are scared to show losses, but I show mine very clearly. There's no way to use a plate filter (which we use) without having some loss....and I show it on my gauging logs. I'll do the same for my barrel loss. If they have a problem with it, I'll be happy to show them my procedures.

[risenshine]

On 5/20/2010 at 7:51 PM, Friday said:

How does one account for evaporation losses in book keeping and tax payment?

I guess what I'm getting at is say I produce 50 gallons of 125 proof spirits. I take that 50 gallons and barrel them for 5 years. For the sake of this discussion I lose 5 proof per year, so at the end of five years I have 50 gallons of 100 proof.

How would I account for the 20% loss? I didn't destroy it and I didn't take it out of inventory. Also say I record 125 proof going in and a year latter the TTB stops by to check and it now at 120 proof, how would that be dealt with?

Would I need to make periodic adjustments in the records? If so what would be the appropriate interval?

Do I pay taxes on the 125 poof that went into the barrel or the 100 proof that comes out?

If this subject has been addressed elsewhere please point it out.

Thanks, Friday

I have a similar question but with the reverse outcome. 

What if I observe maturation increases my Proof? so I have 50 gallons at 110 proof at the date of filling (55 pg)
after maturation I have 48 gallons at 125 proof (60 PG)

How is that recorded for ttb?

If I dilute to 90 proof, I have actually increased my bottle output from the date the cask was filled 

[Pofarmer]

2 hours ago, risenshine said:

I have a similar question but with the reverse outcome. 

What if I observe maturation increases my Proof? so I have 50 gallons at 110 proof at the date of filling (55 pg)
after maturation I have 48 gallons at 125 proof (60 PG)

How is that recorded for ttb?

If I dilute to 90 proof, I have actually increased my bottle output from the date the cask was filled 

Everything is figured at 100 proof.

 

[FIVE x 5 Consulting]

4 hours ago, risenshine said:

I have a similar question but with the reverse outcome. 

What if I observe maturation increases my Proof? so I have 50 gallons at 110 proof at the date of filling (55 pg)
after maturation I have 48 gallons at 125 proof (60 PG)

How is that recorded for ttb?

If I dilute to 90 proof, I have actually increased my bottle output from the date the cask was filled 

It's certainly possible for proof to increase over time in a barrel as it ages.

However, the scenario you have posited (where proof gallons increase over time) is not possible.  Where did the 5 PGs of additional ethanol molecules come from?  The air?  The wood?

You can only lose proof gallons over time, not gain. PGs are a separate measure from the proof of the spirits.

[whiskeytango]

6 hours ago, risenshine said:

I have a similar question but with the reverse outcome. 

What if I observe maturation increases my Proof? so I have 50 gallons at 110 proof at the date of filling (55 pg)
after maturation I have 48 gallons at 125 proof (60 PG)

How is that recorded for ttb?

If I dilute to 90 proof, I have actually increased my bottle output from the date the cask was filled 

Sounds like you have magic barrels that are producing alcohol!  Sort of like the virgin marry I guess.   

But in reality this does not happen you cant put 55 proof gallons of alcohol into a barrel then magically have 60 proof gallons years later.  It just doesn't work like that. 

Most likely you messed up one of your gauging.  Either in correct going in or in correct coming out.  Maybe due to proof obscuration on the way out.