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evaporation loss and taxes?


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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

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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.


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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.

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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.

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