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This was in an article about TTB auditing.

"5 – What are the tolerances for losses for reporting and how do you properly document them?

The Code of Federal Regulations (CFR) stipulates that spirit loss within the storage account is deemed excessive when the quantity of spirits lost during a calendar quarter from all storage tanks and bulk conveyances exceeds 1.5% of the total quantity of stored spirits during the quarter."


If you are storing in barrels your loss is going to be much more than 1.5% though. I'll try calling the TTB next week, but where are you reporting your Angel's Share losses? I've been reporting them on the loss line of my storage report after I empty one. Will this trigger red flags?

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  • 3 months later...

@Dallas To be honest, I got distracted by actually running a distillery, and never called the TTB. I've continued reporting barrel losses under "loss" on the storage reports and on my personal barrel logs. Its the only thing that makes sense to me. If you find anything to the contrary please let me know.

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I'll try to be brief because I too am up to my "whatever" in alligators.

The section to which you refer, 19.462(e),  is headed "Excessive losses" and it only addresses losses from tanks (not packages)  and bulk conveyances (not losses in transit - see 19.462(d) for that - but loses from conveyances you bring onto your DSP and hold the spirits in storage, as in , "It probably ain't gonna happen."). 

The tank losses are determined when you empty the tank or find  when you take your required quarterly inventory and must be entered into the tank records (19.592 and .593).  So the total quantity lost  for the period is the sum of all of those losses in your tank records for the quarter.

If the losses from tanks exceed 1.5% of the quantity you had on hand, in tanks, at the start of the quarter, plus the quantity that you deposited into tanks during the quarter, then you must file a claim or pay the tax on the excess loss, which appears to be only the quantity that exceeds 1.5% of the total you had to account for in tanks during the quarter.

If you have a lot of tanks, making the calculations could be a chore, since the monthly reports include all receipts into, removals from, and losses of spirits held in the storage account.  If you have only a few tanks it should not be too hard. 

However, nothing says you must make the calculations.  If you do not make them, and TTB does an an on premises audit, and looks 19.462 compliance, and TTB makes the calculations,  and you have not filed a claim, and more than six months has passed since the end of the period, and  it is within the three year statute of limitations on assessment, and the amount is material,   then TTB can access the taxes.  If they assess, failure to pay penalty and interest apply.   That string of and and conditions describes the risks of not making the calculations to determine if you need to file a claim.    

Finally, don't ask, "How does this applies to the ubiquitous plastic totes?"  I've never asked and as far as I know, TTB has never stated a position.  The plastic IBC's are, I think, a missing horse, that has escaped from the barn, but no one wants to talk about.    Still, to be safe, for purposes of losses in 19.462,  I'd  treat such totes as if they were tanks. 

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Thanks dhdunbar for the explanation.  I am still a little confused.  Are you telling us that barrels are not considered tanks or conveyances, and therefore angel's share, and the absorption into the wood do not count in the 1.5% 19.462 test?  Therefore just report the losses on our monthly report when we dump the barrels?

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I had some time to call the TTB today. Mary Was delightful and informed me that line 22- "other losses" on the storage report is indeed the place to to report angel share losses. An audit would only be triggered if the losses were much higher. Her example was 50%.

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