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DEPARTMENT OF THE TREASURY |
Industry CircularNumber: 2008-3Date: July 23, 2008 |
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Non-Compliant Flavored Malt Beverages To: Brewers, Importers, and Others Concerned. PURPOSE This circular reminds brewers, importers, and others of the strict limitations that apply to the use of flavors and other nonbeverage ingredients containing alcohol in the manufacture of flavored malt beverages (FMBs). The Alcohol and Tobacco Tax and Trade Bureau (TTB) also wishes to advise industry members of TTB's position regarding non-compliant FMBs and the serious consequences that will result from failure to comply with the regulations that govern the manufacture of FMBs. BACKGROUND On March 24, 2003, TTB published a notice of proposed rulemaking in the Federal Register, TTB Notice No. 4, concerning beer and malt beverages (see 68 FR 14292). Among other things, TTB Notice No. 4 addressed the issue of whether certain products marketed as FMBs should be classified as distilled spirits and taxed accordingly. Notice No. 4 proposed regulations to permit the addition of flavorings and other ingredients containing alcohol to beer and malt beverage products within specific limitations. On January 3, 2005, TTB published a final rule, TTB T.D.–21, which amended the regulations governing the production, taxation, composition, labeling, and advertising of beer and malt beverages (see 70 FR 194). The new regulations allow for the addition of flavors and other nonbeverage ingredients containing alcohol to products classified and taxed as beers and malt beverages but, in general, limit the alcohol contribution from such flavors and other nonbeverage ingredients to not more than 49% of the alcohol content of the product. In addition, if a beer or malt beverage contains more than 6% alcohol by volume, not more than 1.5% of the volume of the finished product may consist of alcohol derived from flavors and other nonbeverage ingredients that contain alcohol. These standards were incorporated into the regulations in 27 CFR parts 7 (Labeling and Advertising of Malt Beverages) and 25 (Beer), and became effective on January 3, 2006. Since the new regulations went into effect, TTB has determined that some brewers have manufactured products that exceed the 49% or the 1.5% limitation on the addition of flavors and other nonbeverage ingredients containing alcohol. Accordingly, TTB wishes to remind brewers of the strict limitations that apply to the addition of flavors and other nonbeverage ingredients to beers and malt beverages. We also wish to advise brewers of the serious consequences that may result from non-compliance with these manufacturing standards for FMBs and of TTB’s policy regarding the treatment of non-compliant products. FLAVOR LIMITATIONS FOR FMBs The regulations at 27 CFR 7.11 and 25.15 provide that a brewer may add flavors and other nonbeverage ingredients containing alcohol to malt beverages and beer within certain limitations. For practical purposes, the regulations provide two distinct standards for FMBs:
TTB will review the brewer's batch records to determine whether products are in compliance with the above rules. The following are examples of batch records for FMB products that illustrate how the above rules apply to FMB products. Example A – Batch Record for 6% or Less Alcohol by Volume FMB Product
Example B – Batch Record for Over 6% Alcohol by Volume FMB Product
TTB POLICIES REGARDING NON-COMPLIANT PRODUCTS The regulations at 27 CFR 7.11 and 25.15 provide specific limitations on the use of flavorings and other nonbeverage ingredients containing alcohol in the manufacture of beer and malt beverage products. There are no tolerances that allow a producer to exceed those limitations. Products that exceed those limitations are classified as distilled spirits products and the following provisions of law will apply. Unauthorized Production and Bottling Distilled spirits may only be produced, bottled, and removed from a registered and permitted distilled spirits plant (26 U.S.C. 5171). Therefore, the production of distilled spirits at a brewery is not authorized and is a violation of the Internal Revenue Code of 1986 (IRC) and may result in penalty or other appropriate enforcement action. Rate of Tax Distilled spirits are taxed at the rate of $13.50 per proof gallon (26 U.S.C. 5001). Therefore, products that exceed the limits in §§ 7.11 and 25.15 are distilled spirits and will be taxed at the distilled spirits rate. Date Taxes Are Due The IRC provides that the tax on any distilled spirits produced in the United States at any place other than a qualified distilled spirits plant shall be due and payable immediately upon production (26 U.S.C. 5006(c)(2)). Therefore, the distilled spirits tax will be due on the date that the finished non-compliant product batch is produced, and all taxes, penalties, and interest will be calculated and assessed by TTB based upon that date. Mislabeling The TTB regulations issued under the labeling provisions of the Federal Alcohol Administration Act (FAA Act, 27 U.S.C. 205(e)) require that alcohol beverage labels provide the consumer with adequate information about the identity of a product and prohibit deceptive information on the label. Distilled spirits products that are labeled as beer or malt beverages are mislabeled under the FAA Act and therefore may not be introduced into interstate or foreign commerce. QUESTIONS If you have questions about the information contained in this circular, please contact TTB's Regulations and Rulings Division at: By Mail: Regulations and Rulings Division
John J. Manfreda
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