Bond termination

[daveflintstone]

So I, like many others, no longer need a distilled spirits bond because of the new lower tax rate.  All the instructions for ttb bond removal I've been able to find only address step by step instructions for online applications.  My original DSP application was paper, so it seems I need to submit a paper form for bond removal.  But which form?  I've been calling and leaving messages at TTB for a month, absolutely no response.  

Anyone...?

[Langdon Guenther]

Hi - My name is Langdon Guenther and I'm retired from TTB. I worked at the National Revenue Center (NRC) here in Cincinnati where we processed permit applications for all 50 states in all commodities. I worked in the distilled spirits section. I can walk you through exactly what you have to do to terminate your bond because of the PATH Act and the lower FET rates and because you filed a paper application (pre-PONL).

Phone my cell at 513-257-9378 and/or email me at langdonguenther@gmail.com and I'll be happy to help you gratis.

Langdon

 

 

 

[InsuranceMan]

Dave and Lang,

     Hello to both of you!  It has been a little while since we last spoke but I wanted to interject here for a moment.  Although the PATH Act and now the lower FET rates have kicked into effect for the next two years, there may still be situations where it is advisable to have a bond in place.  The only thing that was contemplated in this was the "Withdrawal" amount, the act never specifically said anything about the operations side of the bond, the "Distiller / Warehouseman / Processor" portion of the bond.  This portion of the bond covers for items that you have on hand that is either bottled, in process, or aging/maturing on site.  If, for some reason, this product on hand were to be lost, stolen, hijacked, spilled, or lost due to a fire or other disaster, the government could still charge the full amount of taxation that would have been due.  Yes, there is a repeal process that you could potentially go through to have the taxation abated or forgiven, but there is no guarantee that the TTB would waive this.  For this reason, it may be beneficial to keep your bond in place.  There are many other mitigating circumstances as to why you may want to keep your bond in place that I will address in a separate post.  The long and the short of it is, just because the taxation rate is less for the next two years, and just because you may not hit $50,000 in withdrawal, you may be money ahead to keep your bond in place.  Just "booze for thought".

[dhdunbar]

For this reason, it may be beneficial to keep your bond in place.  There are many other mitigating circumstances as to why you may want to keep your bond in place that I will address in a separate post.  I disagree about keeping the bond in place. 

Yes, whether you are required to have a bond is determined  solely by the amount of tax you paid last year or reasonably expect to pay this year.  So it would be possible to have a million dollar tax liability for operations (you are storing a lot of bourbon for future removal) and have no bond coverage because you are exempt from all bonding based on your withdrawals of less than $50K.  So, the question, "So, do I need a bond?" is legitimate.  Let's look at that.  The prospect of having TTB chasing you for money is scary, but as I see it, the question is whether you should fear that less because you have a bond.

First, it is unlikely that you will have losses by theft, fire or disaster and you generally are not responsible for paying the taxes on such losses.  You are liable for taxes on theft if the theft involved collusion by you or an employee or agent (provided you keep your doors locked or have locks on outside tanks or conveyances).  Losses by fire or disaster require a claim, but they are infrequent, at best, and the claim process is not odious.  Further, you'd be a damned fool not to file the claim, because it you don't someone is going to come looking for the money.  The regulations require payment of tax unless you file a claim.   They do not say, well, if the claim seems to burdensome, just don't pay it and let the bonding company suffer the consequences of your failure.  Do you think the surety will  pay when you did not file the claim required to get out of the liability?  No?  I agree.  So you are going to need to file the claim bond or no bond.  If you just say screw it, the surety will come looking for its pound of flesh.  That is, the bond is not a get out of it free card. 

If InsuranceMan knows differently, I'll bow to his experience, but I've never seen a bond application on which the proprietor and at least some of the principals, individually, did not indemnify the surety against loss in the event that the surety has to pay because the proprietor would not.  The proprietor and its named principals jointly and severally liable to make the surety whole. 

The process goes like this, in the  unlikely event that TTB determines that you are liable for taxes on product lost, etc,  they will assess the taxes against you, not the bonding company.  In most cases, they will entertain an offer in compromise for a part of the liability.  If they demand payment, either of the entire amount or a portion of it, you must make it.  You do not go to your bonding company, get money, and pay it.  You dig into your own pocket.  If your pocket is not deep enough, and if TTB will not accept a compromise you propose, they then collect from the bonding company

Guess what happens next. :-)  The bonding company comes after the proprietor and any persons who personally indemnified it against loss.  Don't want to pay the surety?  Be prepared to appear in court at a hearing where they seek to discover your assets and then try to grab them for the debt you owe as an indemnifier.  In short, you are going to pay one way or the other. 

Now, if I'm wrong about this, I'll gladly tip my hat in the direction of the person who can show me the error of my analysis.  In the meantime, for those who like to read regulations, look at:

Sec. 19.254  discuss circumstances under which TTB will assess taxes.

 Sec. 19.461  discusses losses and shortages in general.  It provides, in part, Except as otherwise provided in paragraph (b) of this section, TTB will not collect tax on spirits,denatured spirits, or wines that are lost, destroyed, or otherwise unaccounted for while in bond, and if the tax has already been paid, TTB will refund the tax.  [The emphasis is mine].  It then explains the circumstances when it will collect tax. Read this section.

Then, there are a lot of sections related to claims, some of which will probably have you scratching your head.  But I return to the point - you are going to have to file the claim or suffer the consequences of not doing so.  

Please, if I am wrong about any of this, yell loudly.  I've got the notify me of replies button turned on.

[InsuranceMan]

dhdunbar,

     That is correct, the surety would in deed come looking for its "pound of flesh", as you put it, from the indemnitors listed on the bond.  The main issue as I see it is that the taxes may be assessed and required to be paid prior to the repeal process, which could cause an issue for some distillery owners.

[StonesRyan]

@daveflintstone, I'm in the same place you were when you originally posted here. I've been leaving messages at TTB for almost two months to no avail. Were you ever able to determine which form is used to apply for a bond exemption?

[dhdunbar]

No form - you amend the application on line.  It is a check the box statement, but you have to get through the template builder they have built in. 

If you did not apply on permits online, recent changes still allow you to amend using it.  I've never done that.  But you will have to register as a user first. 

[StonesRyan]

@dhdunbarAwesome, thank you!