Q: What can we expect during a TTB audit?

A: Audit scopes, conducted by the TTB Audit Division, vary depending on the auditor, DSP, and many other factors. Common types of audits include on-site reviews of records and reports, on-site product integrity audits, and off-site audits of submitted reports and returns. Whatever the focus, the goal of any audit is to fulfill the mission of the Audit Division “[to] ensure the proper payment of excise taxes and compliance with laws and regulations in a manner that protects the revenue and prevents unlawful activity in the commodities that TTB regulates.”

If you’re contacted for audit, the letter will likely include a scope to help you prepare, but any audit may include up to the past three years of operations. In addition to anything specifically requested, you should be ready to show support documentation like production, bottling, and withdrawal from bond records; and other documentation to support submitted monthly operations reports and federal excise tax returns. Auditor(s) may also request a private place to sit and work, interviews with your staff, a tour of your facilities, and/or a copy of your plant registration.

No matter the scope of the audit, it’s important not to treat the auditor(s) as an adversary – the TTB wants you to be successful and to continue to generate tax revenue, and you want to run an organization that is in full compliance with the law. Be a good host – be gracious, courteous, and cooperative as the audit progresses. In the end, remember that everyone has the same objective: to Protect the Revenue!

For more information on audits visit the TTB’s Tax Audit Division page.

Q: Where can I get help with the questions on the DSP Application?

A: The TTB has made great efforts over the past few years to simplify and clarify the asks in the DSP application process. They’ve also put together good documentation for most parts of the application, available here, including definitions of specific terms, guidance on what forms need to be submitted, and more.

If you’re looking for more help throughout the process, an industry consultant can be a huge help in navigating all of the pieces of federal registration, startup, and more. FIVE x 5 Consulting is one option, but many more exist as well!

Q: What are the labeling regulations for craft spirits? What verbiage can a distiller use to describe their product whether fermented, distilled, rectified, or bottled?

A: Deciding on the right label verbiage for your brand and spirit can be highly personal, and as a result be a time-consuming and laborious process. Even after you figure out the perfect phrasing for your label, changes required by the TTB (which come back during the label approval process) can be hugely frustrating. The safest bet in choosing verbiage for your label – and minimizing required revisions – is to aim for transparency in your process, and to take into account specific regulations that will help you decide what language is best for your specific labels. Refer to the Distilled Spirit Labeling Guide and Beverage Alcohol Manual (BAM) for those regulations.

Q: We need additional room (for barrel aging or temporary storage of bottled finished goods) and are in the process of finding another building that is not directly adjacent to my current distillery bonded space. How do I get approval?

A: Your expansion will require permitting as a Non-Contiguous Premise, which includes an extension of your bond to a separate location but allows you to report all operations as if both locations were under one DSP. Adding a non-contiguous premise is included in the Amended Application for Distilled Spirits Plant, which can be completed via Permits Online, but we would recommend reaching out to your TTB specialist for help to ensure there are no hiccups in the process.

While there are no specific limitations in the regulations about how far the offsite location can be from your DSP bond, the general rule of thumb is no more than 5-10 miles from your DSP. Additionally, you may need a supplementary surety bond to cover the transfer of any in-bond spirits between the locations.

Q: My DSP gets wine in from an adjacent Bonded Winery for distillation. How do I report receiving and using that?

A: This answer depends entirely on how the wine is being used! If the wine coming into your distillery will be used only for distillation it should be reported as a raw material or fermentable on the Production Report in Part VI, Materials Used. Most distilleries will put the number of gallons of wine distilled on line 9 (Grapes) or on line 10 (with a write-in for Wine). Worth noting is that bringing in wine for use as a raw material/fermentable does not require a Transfer in Bond.

The resulting distilled spirits should be reported as normal on the Production, Storage, and/or Processing reports. Make sure you keep local copies of your bill(s) of ladings or other record(s) of receipt in case of an audit!

Q: How do I track or report Heads and Tails?

A: Records of heads and tails production, redistillation, or destruction are for internal use only and should be kept with other production records at the distillery. Heads and tails are considered unfinished spirits. Unfinished spirits are only reported if they remain in a production tank at the end of a quarter, in which case they are included in the Production Report on line 17b, Unfinished Spirits.

Most distilleries do something with the heads and tails after each run, eliminating any reporting requirement. If you don’t reuse or redistill heads and tails, make sure you are disposing of the spirits and recording the destruction locally in compliance with local regulations.

Q: What TTB reports does a craft distiller have to file and when?

A: Distillers making Beverage Alcohol only (no industrial or denatured spirits) must file monthly operations reports including reports of Production (F5110.40), Storage (F5110.11), and Processing (F5110.28) operations in accordance with their permit. In addition, distillers must file a Federal Excise Tax return (F5000.24) and pay all taxes owed at the close of each tax period. Our recommendation for monthly reporting is to file (whether via Pay.gov or by putting your reports in the mail) no later than the 14thof the following month.

Q: How and when do craft distillers have to pay taxes?

A: Most craft distillers pay $2.70 per proof gallon for any cases of beverage alcohol they remove from the bonded distillery space (which includes cases moved to their gift shop or tasting room areas!). That rate applies to the first 100,000 PG removed per calendar year.

The frequency of excise filing depends on your expected (and previous) annual tax liability. If you…

  • Paid less than $1,000 in excise tax last year and expect to pay less than $1,000 in excise tax this year, you can file annually.
  • Paid less than $50,000 in tax last year and expect to pay less than $50,000 in tax this year, you can file quarterly.
  • Have tax liabilities in excess of $50,000 per year (either expected this year or paid last year), you must pay semi-monthly – that’s twice per month, plus a third period in September.

See more details and due dates on the TTB’s website.

Q: What do I do if I have to destroy bad spirits or finished cases?

A: If you need to destroy alcohol still in bond (whether bulk or in bottles) due to contamination or some other issue, complete an internal Record of Destruction (see 27 CFR § 19.459 for specifics on what needs to be recorded). This record should be kept internally in the event of an audit, but it should not be mailed to the TTB with your monthly reports.

Q: What is the difference between a Gallon, a Wine Gallon, and a Proof Gallon?

A: When distillers talk about a gallon, they traditionally are referring to a volumetric measurement of liquid without any regard to proof or ABV. For example, a gallon of milk contains one gallon of liquid. A gallon is also referred to as a “wine gallon” –winery operations and taxation are based on the volume of gallons of wine, without respect to the ABV of the wine, leading to the term “wine gallon”.

A proof gallon is a measure of the amount of alcohol inside a volume of spirit. A proof gallon is calculated as the volume of spirit (in wine gallons) multiplied by the proof of the spirit as a percentage:

Proof Gallons = Wine Gallons x (Proof / 100)

For example, if a one-gallon container was completely full of spirits at 150-proof (or 75% ABV), it would contain 1.00 wine gallon and 1.50 proof gallons. A one-gallon container of 50-proof (25% ABV) spirit contains 1.00 wine gallon and 0.50 proof gallons.

Note that to accurately calculate proof gallons spirit must first be temperature-corrected to 60ºF.

Q: I’m trying to export my production into the US. Is there is a minimum of content for the alcoholic beverages in order to sell in the US?

A: There is no minimum bottling proof in order to import and sell distilled spirits into the US. The easiest and best approach is to contact the TTB directly to have the product reviewed and classified with a Pre-Import Evaluation: the TTB will help classify the spirit and let you know if it requires a formula or if there are any specific issues with importing the product. Check out the International Affairs page at TTB.gov for more information.

Q: Can a distillery be in the same building that may have some residential units? Not an apartment complex but in a multi-floor mixed used building that may have some loft apartments?

A: This is very tricky and is the source of much debate. Here is the exact regulation:

Subpart F – Location and Use (of distilleries) § 19.131 Restrictions as to locations. Distilled spirits plants shall not be located in any dwelling house, or in any shed, yard, or enclosure connected with any dwelling house, or on board any vessel or boat, or on premises where beer or wine is produced, or liquors of any description are retailed, or (except as provided in §19.133) on premises where any other business is conducted.

In our interpretation, if the distillery is physically connected to one of the loft apartments, it may not be approved. You may also run into local or county fire or zoning regulations that may prohibit the distillery in the building. I highly encourage you to reach out to the TTB directly to have a conversation about the specifics of your potential distillery space before you submit your DSP Application and wait the 120 days for review only to get rejected. Here is some relevant ADI Forum Discussion on the subject.

While this has been the subject of debate in the past, 27 CFR § 19.52 makes this pretty clear:

A person who intends to establish a distilled spirits plant may not locate it in any of the following places:

(a) In any residence, shed, yard, or enclosure connected to a residence;

(b) On any vessel or boat;

(c) Where beer or wine is produced;

(d) Where liquors are sold at retail; or

(e) Where any other business is conducted except as provided in § 19.54.

In addition, you’re likely to run into local or county restrictions (fire code, for example) that prohibit a distillery’s colocation with residences. If you think you may have an exception, however, the best bet is to reach out to the TTB directly to have a conversation about the specifics of your proposed location, rather than submitting your DSP Application and hoping it isn’t rejected.

Q: What happens if I made a mistake on a monthly report that has been sent in already? Is there a way to correct that, or send a corrected report in after the due date?

A: If you recognize an error in a past report – even several months back – you should amend that report as soon as possible. To amend a report, simply re-submit the report (and any subsequent monthly reports that may be impacted, such as with changes to on-hand inventories) with the correct data for the month. If submitting via Pay.gov, check the box for “Amended” (vs “Original”). If you submit paper copies through the mail, hand-write “Amended” in the margin.

Q: What do I do with the liquid remaining in the pot still after the distillation run is completed? Do I need to report it as destroyed?

A: When a distillation run is completed and you have gauged the yield (including low wines, feints, heads, hearts, and/or tails), the remaining liquid remaining in the still can be safely disposed of as permitted by local regulations. While stillage likely contains some amount of alcohol, the proof gallons are likely minimal and can be disposed of without gauging or reporting them as destroyed.

Q: What are craft distilleries allowed to serve in their tasting room or bar area?

A: What a DSP is permitted to serve from its tasting room or bar area is managed at the state and/or local level. Regulations vary: some states don’t allow sales by the drink (or by the mixed cocktail), and some states have limitations on sample sizes. Even those states that permit cocktail sales, regulations may vary as to what can be sold – for example, in some states you cannot serve alcohol that you don’t make, including cocktail ingredients (like vermouth), beer, or wine. For more information, check out the Survey of State Tasting Room Laws for Craft Distilleries.

Q: If we purchase another still, are we required to fill any forms out for the TTB? 

A: Buying a new still requires an amendment to your plant registration to inform the TTB that you have new equipment. If you applied for your DSP permit via Permits Online, you can also amend your permit online. If you applied via paper submission, you can register for a Permits Online account and apply to have your paper application linked to your Permits Online account (to amend online) or apply for your amendment via mail.

Q: Are all distilleries required to register with the FDA?

A: Yes, all distilleries in the US must register with the Food and Drug Administration (FDA) as a Food Facility. More information is available from the FDA.

Q: What is the most recent guidelines for using caffeine in alcohol?

A: According to the TTB, additional caffeine added to alcohol beverages is an “unsafe food additive” and is not permitted for sale. For more information, contact the TTB.

Q: On the TTB New DSP Application form, how do I calculate the number of proof gallons produced each day?

A: The goal of this question on the application is to estimate the size of your distillery to ensure you have sufficient storage and withdrawal bonds in place to cover your expected inventory levels. Estimate the total volume you expect to collect from your still daily; a general ratio is 10:1 (still size to distillate) if you are distilling from fermentation. For more help with your TTB DSP Application, consider working with an experienced consultant.

Q: Is whiskey taxed federally when it is put into the barrel, when its bottled, or when it’s shipped?

A: Today, distilleries only pay federal excise tax after finished cases are withdrawn, tax-determined, from the distillery’s bonded space. For example, a distillery can ferment, distill, barrel, and bottle spirits but will not pay any tax until the bottles are actually removed or shipped from the distillery. As an interesting aside, that regulation has changed dramatically since the end of Prohibition; historically, distilleries and paid tax when whiskey was gauged and barreled and when it was bottled.

Q: What licensing is necessary to buy bulk whiskey, store it at your location, blend, bottle and sell to wholesaler?

A: Even if there is no mashing or distilling in your operation, a full Distilled Spirits Plant permit is required to buy, store, blend, and/or bottle distilled spirits. Applications for DSP permits can be submitted via TTB’s Permits Online portal; you may also be required to obtain local or state licenses or permits. Check with your local distiller’s guild for the requirements in your area.

Have a question not answered here? Ask a question about TTB Reporting!

Important Disclaimer: The content above has been provided by FIVE x 5 Consulting, which is not affiliated with the TTB. The answers on this page are by individual experience and interpretation of the Code of Federal Regulations (CFR) and applicable US Code. Individual distilleries and their proprietors bear ultimate and complete responsibility for ensuring all actions taken are compliant with TTB and other applicable federal, state, and local regulations. While every effort has been made to ensure that information provided is reliable, FIVE x 5 Solutions disclaims any and all liability for any damages resulting from following the advice, responses, or answers posted on this page, even if they have been advised of the possibility of such damages.

ADI and FIVE x 5 Solutions thank Donald Snyder (Time and Tasks) for his contributions to the historical TTB Ask Me Anything content.