ALCOHOL LAW ADVISOR
ALCOHOL LAW ADVISOR
Regulatory and Distribution Law Updates for the Alcohol Industry
ALCOHOL LAW ADVISOR
Regulatory and Distribution Law Updates for the Alcohol Industry
Internal Revenue Code
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TTB Ramps Up Tax Audits and Enforcement

by , and | Mar 19, 2024 | , ,

The Alcohol and Tobacco Tax and Trade Bureau’s (TTB) Office of Field Operations is responsible for ensuring industry members comply with the Federal Alcohol Administration Act, the Internal Revenue Code and all related regulations. It is divided into three groups: the Trade Investigations Division (TID), the Tax Audit Division (TAD) and the Intelligence Division.

Many industry members are most familiar with the TID, as it is comprised of investigators who are responsible for enforcing compliance with the trade practice laws and maintaining a level playing field. The TAD may be less familiar, however, as it is comprised of auditors who are responsible for ensuring payments of excise taxes and compliance with the laws and regulations in a manner that protects revenue and prevents unlawful activity in the commodities that the TTB regulates. The TAD works with other areas of the TTB and has the resources to assist in the investigations of underpayment of tax or other financial areas that relate to the laws and regulations enforced by the TTB. The TAD also performs random audits, which means that every industry member is susceptible to an audit.

Over the past year, the TAD has issued tax-related citations for failure to timely file and/or pay taxes, use of inappropriate tax rates (largely stemming from the improper use of reduced tax rates under the Craft Beverage Modernization Act (CBMA) and failure to maintain adequate records, among other violations. In 2023, the TTB resolved these violations by accepting offer-in-compromise (OIC) settlement payments from the targeted industry members, collectively, to the tune of approximately $850,000.

Based on a review of the OICs which are published on the TTB website, there were a wide range of tax-related violations last year, including:

  • Failure to timely file and/or pay taxes and reports. These failures accounted for nearly 70% of all OIC violations. In these common infringements, the permittee submits their reports or taxes late. The causes for a violation can range from (1) a simple late submission, even 1-2 days late; (2) filing the tax return without paying the taxes; (3) late payments due to processing times; or (4) a change in filing frequency. It is important to ensure that industry members’ reports are filed on time (even a day late is sufficient to warrant a violation) and that the taxes are paid promptly.
  • Use of inappropriate tax rates. There are two main categories of tax rate violations: (1) inappropriate use of reduced tax rates or credits, largely through improper use of the CBMA, and (2) inappropriate categorization of the product (commonly wine). An accurate determination of the product’s tax class is crucial to avoiding these violations, as is consideration of your eligibility (and continued eligibility) for CBMA-reduced rates or credits. We saw a significant increase in tax-related enforcement due to violations from acquisitions completed in the first half of 2023 which impacted eligibility of the reduced tax rates for the entity as a new member [...]

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TTB Spring 2019 Updates to Semi-Annual Regulatory Agenda

by | May 28, 2019 | , , , ,

The spring edition of the federal government’s semi-annual Unified Agenda of Federal Regulatory and Deregulatory Actions (Regulatory Agenda) has been published. Like other federal agencies, the Alcohol and Tobacco Tax and Trade Bureau (TTB) uses the Regulatory Agenda to report on its current rulemaking projects.

The Regulatory Agenda provides glimpses into TTB’s policy focus and aspirations. But, readers should recognize that TTB rulemaking moves very slowly, and the Agency often does not meet the aspirational dates published in the Regulatory Agenda.  (more…)



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TTB Announces Extension of Tax Credits for Wines Stored at Bonded Wine Cellars and Bonded Wineries

by | May 21, 2018 | ,

On May 17, the Alcohol and Tobacco Tax and Trade Bureau (TTB) issued an Industry Circular, No. 2018-1A, clarifying that under the recently-enacted tax reform legislation (Tax Act), wineries may tax determine and tax pay wine they produce and that is stored untaxpaid at another bonded wine cellar or bonded winery as if the wine were removed from the producing winery’s bonded premises.

Among the Tax Act’s many changes to the Internal Revenue Code, the new legislation (which went into effect on January 1, 2018) prescribed new tax credits for wine and suspended (through 2019) the previous tax credit. The Tax Act also suspended the prior law’s transfer provision, which allowed small wineries eligible for tax credits to transfer their credits to another bonded winery. This threatened to leave small wineries transferring their wines to larger bonded wineries without their tax credits. To apply the tax credits to such wines under the Tax Act, the producing winery would need to physically bring the wine back to its premises and remove and tax pay the wine. (more…)



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Additional Rum Cover Over for Puerto Rico and the US Virgin Islands Approved in 2018 Budget Legislation

by | Feb 9, 2018 | , , , ,

Early this morning, both houses of Congress approved the “Bipartisan Budget Act of 2018,” complex legislation that includes important modifications to an arcane law known as the “rum cover over,” which is an important revenue source for the Commonwealth of Puerto Rico and the US Virgin Islands (USVI).

The temporary excise tax relief provided to distillers in the 2017 federal tax reform law will not diminish the amount of federal excise tax revenue covered over to the treasuries of Puerto Rico and the USVI. The 2017 tax reform law included a two year reduction in the federal distilled spirits excise tax rate from $13.50 per proof gallon to $2.70 per proof gallon on the first 100,000 proof gallons of distilled spirits, and $13.34 per proof gallon on the next 22,130,000 proof gallons produced by each distillery or each controlled group of distilleries. The 2018 Budget Act treats all rum subject to the rum cover over as if it is subject to the full $13.50 per gallon excise tax rate. (more…)



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TTB Updates to the Semi-Annual Regulatory Agenda

by | Dec 27, 2017 | , , ,

Last week in its regular newsletter, Alcohol and Tobacco Tax and Trade Bureau (TTB) announced updates to the Fall edition of the semi-annual Unified Agenda of Federal Regulatory and Deregulatory Actions (Regulatory Agenda). Like other federal agencies, TTB uses the Regulatory Agenda to report on its current rulemaking projects.

In the updated agenda, a few new items have been added, and many expected publication dates of Notices of Proposed Rulemaking (NPRMs), Advanced Notices of Proposed Rulemaking (ANPRMs) and Final Rules have changed. As always, readers should recognize that TTB rulemaking moves very slowly, and the Agency often does not meet the aspirational dates published in the Regulatory Agenda. (more…)



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The Intersection of Spirits and Marijuana

by and | Dec 15, 2017 | , , , ,

In the past three years, TTB has approved an increasing number of certificate of label approvals (“COLA”) for hemp-flavored vodka, from Mill Six’s hemp, white tea and ginger flavored vodka to Olde Imperial Mystic’s hemp infused vodka. Distillers have designed labels with green smoke-like images and psychedelic sixties-style lettering to hint at their cultural connection to marijuana. As more states have legalized recreational cannabis, distillers have been thinking more ambitiously about combining their distilling business with one or more aspects of the emerging marijuana business.

Read the full article.

Originally published in Artisan Spirit: Winter 2017.



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The Ban on Consignment Sales

by | May 24, 2017 | ,

Most brewers are at least somewhat familiar with federal and state laws regulating the interrelationships between members of the different industry tiers. The most well-known are the “tied house” laws, which prohibit or severely restrict brewers or beer wholesalers from owning retail establishments (and vice versa), and substantially limit the ability of brewers or beer wholesalers to provide money, free goods, or other “things of value” to retailers.

Until recently, the laws prohibiting consignment sales in the alcohol beverage industry received little attention. But in the past 18 months, the settlement of two federal investigations involving the beer industry’s biggest players has focused new attention on the subject. This article will explain consignment sale laws in an effort to prevent brewers from inadvertently violating them.

Read the full article.

Originally published in The New Brewer, May/June 2017.



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TTB Can Assert a Plethora of Penalties That Are Stated In the Internal Revenue Code

by and | Sep 9, 2013 |

As part of its audit of taxpayers’ excise tax compliance, the Alcohol and Tobacco Tax and Trade Bureau (TTB) may impose several different types of financial penalties stated in the Internal Revenue Code (IRC).  Indeed, TTB can impose more than one penalty with respect to the same excise tax liability, and the total combined effect can reach a maximum exposure of 65 percent of the amount of tax due.

Failure to File, Failure to Pay and Failure to Deposit Penalties

1.  Delinquency Penalty

Generally, if a taxpayer files a late excise tax return or fails to file the return at all, the IRC imposes a delinquency penalty under IRC section 6651(a)(1) that is based on the net amount due on the return.  For any failure to file a return, the penalty is 5 percent of the amount of such tax for the first month of the failure, with an additional 5 percent for each additional month or fraction thereof during which such failure continues, up to a maximum of 25 percent of the amount of such tax.  For purposes of calculating the penalty, the “mailbox rule” does not apply, and instead, the penalty runs from the due date of the return until the date TTB actually receives the late return, and not the date of the return was mailed by the taxpayer.  If TTB deems the failure to file timely or not file at all was the result of taxpayer fraud, the penalty is increased to 15 percent for each month or fraction thereof, with a maximum penalty equal to 75 percent of the amount of tax due.

2.  Failure to Pay Tax Penalty

Additionally, if a taxpayer fails to pay the amount shown as tax on an excise tax return, on or before the date prescribed for payment of such tax IRC section 6651(a)(2) imposes a penalty of 0.5 percent of the amount of tax shown on the return for each month or fraction thereof during which the taxpayer fails to pay the amount due.  The failure to pay penalty, however, may not exceed 25 percent of the amount of tax due.

A taxpayer can also be subject to a failure to pay penalty under IRC section 6651(a)(3) if the taxpayer does not pay the amount of assessed tax, within 21 calendar days from the date of notice and demand.  This period is shortened to 10 business days if the amount assessed and shown on the notice and demand equals or exceeds $100,000.  The amount of the penalty is 0.5 percent of the amount stated in the notice and demand for each month or fraction thereof during which the tax remains unpaid.  This penalty may not exceed 25 percent of the amount of tax due.

3.  Failure to Deposit Penalty

Generally, taxpayers must make timely deposits of excise taxes when they reach a certain dollar amount.   IRC section 6656 imposes a penalty for a taxpayer’s failure to make timely deposits of excise taxes.  [...]

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