How to record TIB materials?

[Foreshot]

How does one properly record materials received via TIB? We bought GNS and I'm struggling to figure out how to record in on the different reports. 

Processing Operations    5110.28

• I put it only on line 2C of the "Spirits" column, then again on 29C (On hand end of month), 

Production Operations    5110.4

• I have no idea what to put on here. I believe that I don't put anything as I didn't "product" it. Though I have no idea if that is correct. There is a TIB column but I think that's for sending not receiving.

Storage Operations    5110.11

• No clue on this one too. Put into bulk storage? The help for "Processing" form says 2C comes from line 17 of this form. I would assume for GNS it would be 17i?

 

Thanks in advance! 

[JailBreak]

As far as I've been told, you receive GNS on the Storage Report, Line 2 'Deposited into Bulk Storage'. From there, whenever you use an amount of GNS for product, let's say 20 gallons,  those 20 gallons would be marked on Line 17 'Transferred to Processing Account'. On your processing report the 20 gallons will be recorded on Line 2 'Received (other than Line 3)'. Rinse and repeat. If you use the GNS to redistill, like producing gin for instance, then on your Storage Report it would be recorded on line 18 'Transferred to Production Account'. Then on your Production Report it would be reflected on Part 1 Line 15 'Received for Redistillation' AND Part 5 (Used in Redistillation) Line 1, with 'Kind of Spirits' being recorded as 'Alcohol and Spirits 190 and over'. 

[dhdunbar]

Jailbreak has it almost right, sorta.  You can receive spirits by transfer in bond into either the storage account (§19.322(a)(2)) or the processing account (§19.342(a)(2)). 

Generally, you would receive spirits into the storage account if you do not plan on "dumping" and using them as a single lot in the processing account.  For example, if you bring in GNS in a 275 gallon tote and then withdraw it 50 gallons at a time, over a period of a month, say, you would enter it into the storage account and then treat it like any other spirit in that account.  If you bring n another 275 gallon tote and intend to immediately add flavor to all 275, then you can receive it as bulk spirits into the processing account and treat them as you would any other spirits to which you add flavors. 

Now, whether you receive them into the storage account or the processing account, if you resdistill them to make vodka (NSG is a class, vodka is a type within the class, so a change from GNS to vodka is a change of class and type under TTB's rules) or make gin or some other product that you flavor by evaporation in redistillation, you do that in the processing account (§19.602), not the production account.   The only reason you would return spirits to the production account for redistillation is your desire to salvage alcohol which you have somehow screwed up.  That redistillation is done under §19.314 and following.  

[kkbodine]

15 hours ago, dhdunbar said:

Now, whether you receive them into the storage account or the processing account, if you resdistill them to make vodka (NSG is a class, vodka is a type within the class, so a change from GNS to vodka is a change of class and type under TTB's rules) or make gin or some other product that you flavor by evaporation in redistillation, you do that in the processing account (§19.602), not the production account.   The only reason you would return spirits to the production account for redistillation is your desire to salvage alcohol which you have somehow screwed up.  That redistillation is done under §19.314 and following.  

So the re-distillation would be reported on the Processing report line 20, used for redistillation? 

[dhdunbar]

Let me think about that. 

The problem with using line 20 is that an entry there removes the spirits from the bulk processing account.  If they are removed, they have to be in one of the other accounts, either production or storage.  Storage makes no sense, because you don't redistill in storage.  So, they would have to be in the production account.  But spirits returned to the production account for redistillation are captured in line 17.  Entering them into both line 20 and line 17 would double the quantity removed.  That can't be correct. 

Next, line 20 does not say "transferred," it says "used."  You use them within the account.  You transfer them out of the account. how do you get them back in?  You could use line 2, received, but you are not receiving them into the account.  They have not left it.  §19.602 etc makes that clear. 

Risking hubris, my gut response is that whoever created line 20 did not know what the hell they were doing.,  For example, line 20 implies that you could use wine for redistillation - the cell is not blocked out as other forbidden accounting are.  But you only record wine into the account when you dump it (mix it with spirits) at line 5.  So, he said with a sigh, it is never in the account as wine that can be redistilled, and (sigh again) it would not be a redistillation anyway, since that would be production. That is why line 17 blacks out transferring wine for redistillation.   If they knew what they were doing, they would have blackened it.  

Again, my gut response is that "used for redistillation" is an entry that should exist on the report.  The report only captures transactions that move the spirits from one account to another.  Every entry either receives the spirits into either the bull processioning or finished goods processing account or removes them from those account, or transfers them between those accounts.   Every entry, save one - "used for redistillaton."  It is as an aberration, but it exists  So how are you suppose to deal with it?

Like I said, let me think about it. 

If I'm correct, and TTB messed up, then they can hardly take exception to our doing the same :-).  Yea,  sure.

 

.

 

[kkbodine]

20 hours ago, dhdunbar said:

Let me think about that. 

The problem with using line 20 is that an entry there removes the spirits from the bulk processing account.  If they are removed, they have to be in one of the other accounts, either production or storage.  Storage makes no sense, because you don't redistill in storage.  So, they would have to be in the production account.  But spirits returned to the production account for redistillation are captured in line 17.  Entering them into both line 20 and line 17 would double the quantity removed.  That can't be correct. 

 

I missed line 17 and may or may not be doing all of this on another form currently. Certainly no one from TTB has complained or maybe no one ever looks.  On another note, it seems like having three forms is overkill. Wine production makes do with one just fine though it can get complicated too.

[dhdunbar]

Sometime around 2012 TTB proposed a new, single form. They had a notice of proposed rulemaking out (see https://www.govinfo.gov/content/pkg/FR-2011-12-05/pdf/2011-31142.pdf).  You can view the proposed form atg https://www.regulations.gov/docket?rpp=10&po=0&D=TTB-2011-0010.  There were 22 comments, which you can also view at the last link.  There were many objections.    See, for example, the comments submitted by the Presidents Forum.  There was a lot of fuss and flack.  TTB just dropped it., probably wisely, because the forms did not mesh with the records.  TTB is now talking about doing it again, but I do not see it on the regulatory agenda yet.  I suspect line 17 of the current op form is also an example of something that doesn't mesh with regulation..  

Your observation that no one from TTB has complained sums things up.  They don't have time to look.  They can't possibly audit them for irregularities.  If you are not doing it correctly, it is unlikely to have a consequence.  Further, the reports are not evidence of compliance.  Everyone is concerned about them, because they, tax returns, formulas, and labels are likely the only contact most of you will ever have with TTB.  My business is not exactly drowning in requests for help in responding to TTB's allegations of violations :-).  Because the reports prove nothing, I'd not be nearly as concerned, from a compliance standpoint, with them, as with the records from which you gather the information.  How many persons who are making gin by redistillation in the processing account are keeping the redistillation record required by §19.602.  How many have the package records?  Who is keeping serially number gauge records?  Those are the records that demonstrate compliance.  But who is looking at them?  

So, when someone asks a question, I give a by the book answer, to the best of my ability.  That what you are doing doesn't comport to what I think you should be doing, based on the regulations, which I usually try to cite by number, is likely never to become an issue, even if my reading of them is spot on, or even if you have no records, because TTB is not likely to knock on your door and if it does, it is more likely than not gong to take punitive action unless it finds you have not paid the taxes that are due or are bottling far more rye than your records can support.. .  

In fact, I think most TTB employees do not know what the regulations require.  That sounds harsh, but it s not unusual.  I should know that better than most TTB employee, amnd so should you, because we deal with it every day, whereas they might see one or two distilleries a year, if that. 

 

 

 

[kkbodine]

17 hours ago, dhdunbar said:

 

Your observation that no one from TTB has complained sums things up.  They don't have time to look.  They can't possibly audit them for irregularities.  If you are not doing it correctly, it is unlikely to have a consequence.  Further, the reports are not evidence of compliance.  Everyone is concerned about them, because they, tax returns, formulas, and labels are likely the only contact most of you will ever have with TTB.  My business is not exactly drowning in requests for help in responding to TTB's allegations of violations :-).  Because the reports prove nothing, I'd not be nearly as concerned, from a compliance standpoint, with them, as with the records from which you gather the information.  How many persons who are making gin by redistillation in the processing account are keeping the redistillation record required by §19.602.  How many have the package records?  Who is keeping serially number gauge records?  Those are the records that demonstrate compliance.  But who is looking at them?  

So, when someone asks a question, I give a by the book answer, to the best of my ability.  That what you are doing doesn't comport to what I think you should be doing, based on the regulations, which I usually try to cite by number, is likely never to become an issue, even if my reading of them is spot on, or even if you have no records, because TTB is not likely to knock on your door and if it does, it is more likely than not gong to take punitive action unless it finds you have not paid the taxes that are due or are bottling far more rye than your records can support.. .  

In fact, I think most TTB employees do not know what the regulations require.  That sounds harsh, but it s not unusual.  I should know that better than most TTB employee, amnd so should you, because we deal with it every day, whereas they might see one or two distilleries a year, if that. 

I appreciate the response. I have had three visits from the ATF/TTB in 28 years at various wineries/distilleries. First visit was to show the new guys what a winery looks like just in case they ever got sent to one. Second visit was trying to iron out some licensing issues during the application process. Third was an inspection, and I was able to supply all of the backup records requested. I was kind of surprised about what was looked at and what was not, though it was only a 2-3 hour look  In my opinion, the regulations and forms don't capture how a modern distillery (or winery) operates and make it harder for the TTB to do its job. I doubt anyone is going to re-write the whole thing from the start anytime soon.

[dhdunbar]

Because this is turning into a sort of overview of TTB's regulation of distilled spirits plants, I''ll offer a few more comments.  The division into production, storage and processing comes straight from the law.  A person may qualify to do any or all in any combination except process only.  So, production, storage, and processing operations,, collectively, encompass all the distilled spirits operations you may conduct.

The division into three  was not arbitrary.  It reflected what people actually did a the time the law was passed and which they still do, to this day.   

TTB is charged, by law, with protecting the revenue and protecting the consumer.  To do that, it makes rules.  These rules also derive from practice.  For example, bourbon is the free invention of the human mind.  It is not, like gold, an element found in nature.  It is something someone made and to which people applied a label, which was later formalized by definition, in a set of regulations designed to ensure that people who bought something labeled bourbon got what they thought they were purchasing.  First the thing, then the word for it, then the definition.  Or, because the government invented a unit, the proof gallon, as measure of the tax liability for spirits, the rules require that you account for spirits in proof gallons.  

"Account" is a term of consequence.

You conduct all of the operations on your bonded premises.  Your bonded premises is not further divided into production, storage, and processing areas.  For example, you may use the same tank to store spirits that you use to processes them. Or you may use your still to both produce neutral spirits by original distillation and to manufacture gin by the redistillation of the neutral spirits you produced.  So, you do things not in areas, but in accounts. 

But what is a account?  It is a n organized collection of data.  Since form follows function, the way in which it is organized is a function of the purpose for which it is collected.  So, if you conduct operations in production, storage, and processing accounts, you organize the data into production , storage and processing records.    The records you must keep depend on the operations you conduct and the information they must contain depends on what you do.   If you store spirits in tanks, you must have records of the spirits held in each tanks in the storage account.  Having said that, I am reminded that I should be careful not to use bad examples,  because if you store spirits of 190 proof or more in tanks, you can keep a single record of all such tanks.  there is a reason  for that.  All such spirits are of a single class, neutral and so form dutifully follow function!  

The form follows function rule leads to a different sort of record in the processing account.  If you process spirits in tanks, you do not have a "tank record."  Instead,  you have a "dump and batch record" that shows both the  tank in which the processing operations took place and the details of the processing  operations that took place in that tank.  But when you bottle, you have a "bottling tank" record.  Form and function.  Form and function.  

But what is the ultimate function of records?  The records that you keep are the only evidence you have that you complied with the rules governing the operations you conducted in the account.  And since the rules are designed to protect the revenue and the consumer, they are the only evidence you have that what you sold as bourbon was bourbon and that you paid all the taxes you owed on the bourbon you removed.  .  

In summary, the law and regulations impose the three part shell - production, storage and processing -  over the two part purpose - protection of the revenue and protection of the consumer . What you do determines the accounts that you must keep;  what the records show depends on the operations conducted; and what the records demonstrate is compliance with the rules governing tax payment and designation of products.  

TTB wants you to organize your records in the way the regulations require because it allows them to audit without having to learn a different record system for each establishment they visit.  If you are a small producer who produces and processes a single batch from fermenting material through bottling, if you keep a  batch record captures all the data required, TTB is not likely to complain about the form of your record, because it functions to allow them to effectively verify that you paid the taxes owed, complied with formulas, did not mislabel, and did not add ingredients that were not GRAS, etc.   However,  that form of record may  function to aggregate entries you need to prepare your operating reports,  so you will have to deal with that.  And, if you have more complicated operations, if TTB audits, which is a very big "if,"  they will want to find records that are organized in the form required by regulation,, because that organization functions to allow an effective audit.  If they do not find such organization, they might cite violations for the format of your records.  But they will not cite tax violations or labeling violations if your records demonstrate, regardless of format, that you paid the correct taxes and correctly labeled the products you removed.

Which brings me back to operational reports.  Loops do sometimes close.  The principal problem with the one size fits all operating report is designing one that meshes with the required records and doesn't confuse operations.  People can point to the single forms prepared by breweries and wineries, but that is done simple by including the entries for each account on the single form.  It does not significantly reduce the reporting burden.  In the end, they make things s things no simpler. TTB can make it simpler only by reducing the information that you required to report.  

Can TTB reduce what you are required to report?  Yes, it can.  But what it can do and what it should do are different questions.  Consider your financial accounts.  Are they useful by themselves?  Yes, but ...   The "but" follows closely on the heels of the the "yes"  because the records are far  more useful to you when you use them to generate financial statements that  allow you to see the "big picture."  TTB's operating reports are the functional equivalent of financial accounting statements.   The summary accounts have value, not just to the government, but to you.  When you examine them, you see anomalies you miss looking only at raw data.  You look at an operating report and say, "That can't be correct.,"  and you go looking to find out why.  You catch errors as they occur.  If the error happens to result in a $500 underpayment of taxes,  you can root out the cause, so that it does not become, in three years an $18,000 tax bill with interest and penalties added  to boot.

  

[adamOVD]

Thanks for all the insights @dhdunbar. You're a great resource for the distilling community. 

I would have done the exact same thing as @JailBreak. I make my own neutral, but have done similar things when changing classification of spirits. I don't think I realized the full scope of the Processing account, and was just using it as a bottling account. In the following situation, does the sample sheet I've attached look right?

100 Proof Gallons of neutral are produced, or purchased.

50 proof gallons are filtered and bottled as vodka. There is a .3 proof gallon loss in filtering, and a .1 proof gallon loss in bottling

50 Proof gallons are re-distilled into gin. There is a 1 proof gallon loss in "heads and tails cuts" and a .1 proof gallon loss in bottling

example.pdf

I'm still not quite sure if I understand how to change the class correctly, but this is much simpler than "juggling" spirits around on reports to do so.

[Foreshot]

Thanks for the input everyone. I'm still not 100% sure of everything I'm doing but at least I have this thread to work from.