Common Compliance Issues in a TTB Bonded Wine Premises (BWP) Audit
If you are selected for a TTB excise tax audit, don’t panic. A representative from TTB’s Tax Audit Division will call you and explain the audit process in detail so that you can prepare for TTB’s site visit. Additionally, TTB will send you a letter that explains what records and reports will be reviewed by TTB during the audit. To expedite the audit process, TTB suggests that you get all the requested materials together as soon as possible. If you do not have all the documents identified in the letter, contacts the Auditor-in-Charge identified in TTB’s letter and determine whether there are any other records available that contain the information needed for the audit. Please feel free to discuss any items noted during a TTB audit with the audit team performing the work. TTB encourages open communication with the taxpayer throughout the audit engagement.
We researched TTB records for the most common compliance and tax issues encountered over the past few years by Bonded Wineries (BWN) and Bonded Wine Cellars (BWC), and we list them here. We grouped these issues into four areas: (A) Records, (B) Inventory, (C) Reporting and Tax Payment, and (D) Basic Permit, Registration and Bond. Within each of these areas we list the common audit issues in order of frequency.
The Tax Audit Division works directly with taxpayers that are being audited. If you have a general question regarding recordkeeping, reporting, excise tax or other compliance matters at other times, please contact the National Revenue Center at 1-877-882-3277 or by e-mail at TTBInternetQuestions@ttb.gov, or access the Federal Regulations at www.ttb.gov.
Using This Tutorial
This interactive tutorial gives you details about the common issues revealed during TTB audits, discusses how you can avoid problems and provides links to the applicable TTB regulations and the necessary TTB forms.
Common TTB Forms used in this tutorial
Most Common Compliance Issues
The most common compliance or tax issues fall into four broad categories: records, inventory, reporting and tax payment, and basic permits, registration and bonds. Below we discuss each in the order of its frequency of occurrence.
How to avoid problems with…
Records
Inventory
- Inventory timing, records and signature
- Inventory losses and loss limits
- Records of bottled or packed wine
Reporting and Tax Payment
- Timely filing the Report of Wine Premises Operations (TTB F.5120.17) and completing the form correctly
- Calculating and paying tax on wine
- Filing claims for wine or spirits lost or destroyed while in bond
- Tax payment and filing TTB F 5000.24 Excise Tax Returns
- Signature authority
Basic Permit, Registration and Bond
The most common issue found by TTB was that documentation in support of the Report of Wine Premises Operations (TTB F.5120.17) was either non-existent or inadequate. The requirements are discussed in Regulation 27 CFR 24.300.
The most frequent problems with documentation in support of the Report of Wine Premises Operations (TTB F.5120.17) are:
(i.) Lack of required breakage reports or records of incidents of breakage.
(ii) Accessibility to source records. It is required that all source records be on premises and accessible to the TTB. The inability of the BWP to locate source records such as bills of lading, invoices, pick slips, export documentation, inventory documentation, lab results, etc. could result in a violation. The information required in these source records is specifically detailed in the regulations.
How can you avoid problems caused by poor general records?
- First, review regulations 27 CFR 24.300-.323. These regulations detail the type and contents of records required. For more information see http://www.ttb.gov/wine/what_happens_after.shtml
- Keep your records well organized and readily available.
- Always summarize your source records and reconcile them to your Report of Wine Premises Operations (TTB F.5120.17) in a timely manner. Wine operations and transactions must be entered in the records at the time the operation occurs, or in some circumstances the recording may be deferred to not later than the close of business of the third business day after the operation occurs.
The information that should appear on transfer in bond records (e.g. a bill of lading) is given in 27 CFR 24.309. BWPs frequently do not have all the information required on their transfer in bond records.
According to regulation 27 CFR 24.309, the transfer in bond record must show:
(a) The name, address and registry number of the proprietor;
(b) The name, address and registry number of the consignee;
(c) The shipping date;
(d) The kind of wine (class and type);
(e) The alcohol content or the tax class;
(f) The number containers larger than four liters and cases;
(g) The serial numbers of cases (if any) or containers larger than four liters;
(h) Any bulk container identification marks;
(i) The volume shipped in gallons or liters;
(j) The serial number of any seal used;
(k) For unlabeled bottled or packed wine, the registry number of the bottler or packer;
(l) Information necessary for compliance with 27 CFR 24.315, e.g., the varietal, vintage, appellation of origin designation of the wine or any other information that may be stated on the label; and
(m) Information as to any added substance or cellar treatment for which a label declaration is required for the finished product, or any other cellar treatment for which limitations are prescribed in this part, e.g., amount of decolorizing material used and kind and quantity of acid used.
The information most frequently omitted are the kind of wine (class and type) and the alcohol content or tax class.
How can you make sure transfers in bond records are complete?
When you are setting up the format for your transfer in bond records (bills of lading) consult the list given in 27 CFR 24.309, making sure everything that is requested by the regulation is included. Remember, this is information required for bills of lading when wine is transferred in bond to another bonded wine premises.
Some BWPs do not include all of the required information on shipping documents used as taxpaid removal records (e.g. a bills of lading, customer invoices) when wine is removed for consumption or sale.
The regulation 27 CFR 24.310 says that the taxpaid removal record will show:
- the date of removal,
- the name and address of the person to whom shipped, and
- the volume, kind (class and type), and alcohol content of the wine.
The volume of wine removed taxpaid must be summarized daily by tax class in wine gallons to the nearest tenth of a gallon.
How do you make sure your taxpaid removal records meet TTB regulations?
When you are setting up the format for your taxpaid removal records (shipping bills of lading and customer invoices), make sure that they are dated, have the name and address of the customer, the volume sold, class and type of wine and the alcohol content of the wine, and that the volume is summarized daily as required.
Exports of wine are not taxable provided that proof of export is obtained within 90 days of export. . It is this documentation that frequently causes problems for proprietors.
Regulations 27 CFR 24.292 and 27 CFR 28.121 both allow the removal of wine without payment of tax for export, for use on vessels and aircraft, and for transfer to a Customs Bonded Warehouse or Foreign Trade Zone for exportation, or storage pending exportation. Regulation 27 CFR 28.122 requires that the exporter file a TTB Form 5100.11, Withdrawal of Spirits, Specially Denatured Spirits, Or Wines for Exportation. Regulations 27 CFR 28.250 to 27 CFR.253 explain the required proof of export.
The proof of exportation is documentation that the wine either exited the country or was deposited into a Foreign Trade Zone or Custom Bonded Warehouse. TTB Industry Circular 2004-3 explains what TTB will accept as proof of export.
TTB Industry Circular 2004-3 requires sending export documentation to TTB’s National Revenue Center (NRC) in Cincinnati unless the BWP gets a variance allowing it to keep the documentation on the wine premises.
When Bills of lading are used as proof of export, the must be signed by the carrier or by an agent of the carrier and contain the following minimum information:
- The name of the exporter (if different from the shipper),
- The name and address of the consignee (foreign consignee in case of export or through bill of lading),
- The number of packages or cases,
- The serial number of the TTB Form 5100.11, and
- The total quantity in wine gallons or liters,
The details of export documentation are given in Industry Circular 2004-3, Alcohol and Tobacco Export Documentation Procedures, at http://www.ttb.gov/industry_circulars/archives/2004/04-03.html . Frequently asked questions (FAQ) about exporting wine are available at http://www.ttb.gov/industry_circulars/archives/2004/04-03-faqs.html.
Occasionally the TTB F 5100.11 is not properly completed. Some common errors are:
- Failure to provide the name of the country in Space 6.
- Failure to provide the name of the domestic carrier in Space 8
- Failure to provide a sufficient description of "kind" in Space 11 or the serial number given is not the BWP's item number for the product.
- Failure to provide the signature and title of the person completing the form in Space 13
Other typical problems with an incorrectly completed TTB Form 5100.11 include, wine gallons incorrectly calculated, wine gallons not listed, incorrect wine type, or wrong shipping date.
Exports of untaxpaid wine should be shown on the Report of Wine Premises Operation TTB F 5120.17. The proprietor must report export removals on the appropriate lines (Part I, Section A Line 24-28 for bulk wine, Section B, Line 12 for bottled wine – “Removed for Export”) of the Report of Wine Premises Operation TTB F 5120.17.
How can assure that you have the proper export documentation?
- Remember that export reporting is required if you wish to be relieved of the federal excise tax. Obtaining and maintaining export documentation requires persistence and discipline.
- Review TTB Industry Circular 2004-3 to get all the details of what is required for tax free exports.
- Review the frequently asked questions (FAQ) about exporting wine available at http://www.ttb.gov/industry_circulars/archives/2004/04-03-faqs.html.
- Review your present bills of lading to see if the required information is supplied. If not, correct your forms.
- Read the “Instructions” page of the TTB F 5100.11 “Withdrawal of Spirits, Specially Denatured Spirits, and Or Wines for Exportation”.
- Reconcile your TTB Forms 5100.11 to your TTB F 5120.17, Report of Wine Premises Operations every period.
- Documentation may take several weeks to get back to you from the ports of export. Make a list of all of your export shipments and check on the whereabouts of the documentation frequently.
The most frequently occurring compliance issue BWPs experience related to inventory records is the timing of the inventory. Notification of TTB is required if the annual inventory is taken other than on June 30 (proprietors who file annual report Forms 5120.17 are required to take their annual inventory on December 31). Also included in this category are lack of or poor inventory records, and when the inventory summary is not signed under penalties of perjury.
Many industry members are unaware that if the annual inventory is performed at a time other than June 30, notification to TTB is required. A copy of the notification must be maintained on the wine premises. If you take monthly inventories, notification is not required, but a full and complete physical inventory is required to be taken at least annually.
Here are some examples of the problems we have encountered:
- Inventory summaries of the counts for bulk wine, cased goods and spirits must be maintained. The volume of bulk and bottled or packed wine must be totaled separately in wine gallons or in liters, by tax class.
- Inventory pages must be numbered consecutively.
- A copy of the Report of Wine Premises Operations TTB F 5120.17 for the inventory month must be kept with the completed inventory records.
The most frequent inventory record issue is lack of a signature and the perjury statement on the last page of the inventory summary. The proprietor's wine and spirits inventory summary must contain the required statement that it was signed under penalties of perjury (see below), and it must be signed and dated by an authorized representative.
27 CFR 24.313(e) Inventory Record. All inventory pages will be numbered consecutively and the last inventory page will be dated and signed after the statement, "Under penalties of perjury, I declare that I have examined this inventory record and to the best of my knowledge and belief, it is a true, correct and complete record of all wine and spirits require to be inventoried."
How can you avoid inventory record and timing problems?
- If your annual inventory is taken in a month other than in June, immediately notify the National Revenue Center of TTB of your alternative date.
- In order to ensure that you are in compliance with the inventory regulations, make sure that it includes the perjury statement on the last page of the final inventory count sheet.
- Make sure each page of the inventory is numbered sequentially. The person in charge of the inventory must sign and date the inventory. . The volume of bulk and bottled or packed wine must be totaled separately in wine gallons or in liters, by tax class. Keep a copy of the Report of Wine Premises Operations TTB F 5120.17 for the inventory month with the completed inventory records.
Inventory loss issues are primarily about two areas: (1) filing claims for allowance of excessive bulk wine losses to TTB and (2) payment of tax on bottled inventory shortages.
Bulk wine losses are reported on the Report of Wine Premises Operations TTB form 5120.17 (found at http://www.ttb.gov/forms/f512017.pdf,) on line 30 of Part I, Section A. That number represents losses due to spillage, leakage, soakage, evaporation, and other losses normally occurring from racking, filtering, bottling and other operations since the previous physical inventory.
If the bulk wine losses for the reporting period exceed the allowable limits given in 27 CFR 24.266(b)(2), a claim for allowance of loss must be sent to TTB’s National Revenue Center (NRC). The claim form is TTB F 5620.8 Claim- Alcohol, Tobacco and Firearms Taxes. Information on filing claims is at: http://www.ttb.gov/forms_tutorials/f56208b/faq_instructions2.html. The claim process is also given in 27 CFR 24.65.
27 CFR 24.266 states that the physical inventory of bulk wine will determine losses due to spillage, leakage, soakage, evaporation, and other losses normally occurring from racking and filtering since the previous physical inventory required by this section.
A claim for allowance of loss is required within 30 days of the discovery of loss for inventory losses in production or storage where:
(A) There are circumstances indicating that all or a part of the wine reported lost was unlawfully removed, or
(B) The loss on bonded wine premises during the annual period exceeds three percent (3%) of the aggregate volume of wine on-hand at the beginning of the annual period and the volume of wine received in bond during the annual period; or the loss exceeds six percent (6%) of the still wine produced by fermentation; or the loss exceeds six percent (6%) of the sparkling wine produced by fermentation in bottles; or the loss exceeds three percent (3%) of special natural wine; or the loss exceeds three percent (3%) of the artificially carbonated wine produced; or the loss exceeds three percent (3%) of the bulk process sparkling wine produced.
The percentage applicable to each tax class of wine is calculated separately, unless blending operations make the calculations impracticable – this should be discussed with TTB if you have any questions.
Any time there is a shortage of bottled inventory and a valid explanation is not provided, the tax on the wine must be paid. A common error is when bottled wine shortages are reported on the Reports of Wine Premises Operations, TTB F 5120.17 (Part I, Section B, Line 19), but the associated tax as required by 27 CFR 24.266
(c) is not paid
How can you avoid problems with inventory losses and reporting?
- If your physical inventory count is less than your book amount the shortage is reported in Part I, Section B, line 19 of the Report of Wine Premises Operations, TTB F 5120.17. Tax must be paid on inventory shortages of cased goods
- Calculate your bulk inventory losses as given in 27 CFR 24.266(b)(2). If the loss exceeds the allowable limits, a claim for allowance of loss must be filed with TTB within 30 days of the discovery of loss on TTB F 5620.8 Claim- Alcohol, Tobacco and Firearms Taxes.
We sometimes find that the record of bottled or packed wine record is incomplete, and not in accordance with 27 CFR 24.308.
If you bottle wine, you must maintain a record, by tax class, which includes the date, kind of wine, the number and size of the container filled, and volume of wine bottled.
Other bottled wine record requirements include:
- The serial number of the label used on bottles or other containers must be shown in the record by using the “Applicant's Serial No.” (item 4 on the label application form, TTB F 5100.31)
- Fill tests and alcohol tests must be recorded for each bottling or packing line operated each day (or each lot of wine bottled), showing the date, type of test, item tested and the test results.
- If you wish to claim a tax credit, more detail is required. See Regulation 27 CFR 24.278.
Other data is required when bottled wine is received, returned to, or removed tax paid from bond. Records must also be kept about bottled wine that is destroyed, broken, used for tasting, testing, or dumped to bulk.
Often, records of packaged and bottled wine don’t exist or are incomplete. For instance, the BWP is not able to provide source documents, such as work orders for bottled wine record or label information record. Bottling records may not contain information such as: the date wine was bottled, wine alcohol content, labels used on bottled wine, the size or number of bottles and alcohol and fill test results being conducted for each bottling run as required. Another frequent issue is entering information incorrectly in the bottled wine section of the TTB F 5120.17 Report of Wine Premises Operations. Breakage should be reported on Part I, Section B, Line 18. Wine used for testing is shown as “Used for Testing” (Part I, Section B, Line 14). Wine used for tasting within the bonded area is entered under “Used for Tasting" (Part I, Section B, Line 11). If the tasting takes place away from the bonded premises, the amount is considered taxably removed and tax must be paid (enter the amount in Part I, Section B, Line 4 along with other taxpaid removals).
How do I make sure bottled and packed wine records are complete?
- Make sure that you have a record for breakage, testing, tasting, inventory shortages and each type of inventory loss (in transit, spillage, theft, natural disasters, and destruction).
- Verify that each of these records complies with the regulations as to the information needed. See discussion above and Regulation 27 CFR 24.308.
- When you complete TTB F 5120.17 Report of Wine Premises Operations, be careful to put the data on the appropriate lines. See instructions on completing TTB F 5120.17 form at http://www.ttb.gov/forms_tutorials/f512017/f512017_tutorial.html or the discussion above.
Reporting– Issue 1 - Timely filing the Report of Wine Premises Operations (TTB F 5120.17) and completing the form correctly.
The most common issue associated with the Report of Wine Premises Operations (TTB F.5120.17) is late filing. The second most common issue is the entry of incorrect information.
The Report of Wine Premises Operations (TTB F 5120.17) should be filed monthly in most cases. However, some BWPs are permitted to file the report quarterly or annually, based on criteria given in Regulation 27 CFR 24.300 (g)(2). The form TTB F 5120.17, Report of Wine Premises Operations must be submitted by the 15th day after the end of the reporting period (month, quarter or year). Sometimes the Report of Wine Premises Operations (TTB F.5120.17) is not properly completed. The TTB F.5120.17 may not be correct because of: 1) clerical errors; 2) data omissions; 3) inaccurate reporting of the on-hand amounts from one reporting period to the next; 4) dollar values being reported instead of the wine gallons; 5) inaccurate transcription of data from source records to the wine operations report; or 6) data entered on incorrect lines.
A tutorial on how to complete the Report of Wine Premises Operations TTB F 5120.17 is at http://www.ttb.gov/forms/index.shtml.
How do I make sure the TTB F 5120.17 is complete and filed on time?
- Thoroughly familiarize yourself with the TTB F 5120.17, Report of Wine Premises Operations by reading the instructions on the form and then taking the form tutorial at http://www.ttb.gov/forms/index.shtml.
- Prepare your TTB F 5120.17 early to allow time to review and submit the form by the due date (15th of the following month).
The tax issue that most frequently causes penalties and interest to be assessed for BWPs is the incorrect calculation of tax. The discussion below illustrates the calculations that TTB will use in every audit and TTB’s National Revenue Center may use in a desk audit. One potential reason that the Excise Tax Return is incorrectly completed is that the underlying data is incorrect. The regulations state that the tax on wine is determined when the wine is removed from the bonded wine premises for consumption or sale. Section 5041 of title 26, United States Code, imposes an excise tax, at the rates prescribed, on all wine (including imitation, substandard or artificial wine, and compounds sold as wine, which contain 24 percent or less of alcohol by volume) produced in or imported into the United States.
Here are two basic facts that you need to understand before you calculate taxes owed:
- The amount of bottled and bulk wine taxably removed during the return period, multiplied by the appropriate tax rate, (http://www.ttb.gov/tax_audit/atftaxes.shtml ) equals the tax liability for the return period. This number is entered on the line labeled “Wine,” Line 10 of the Excise Tax Return, form TTB F 5000.24 for the period covered by the tax return The amount of wine taxably removed is obtained from the data maintained for the Taxpaid Removals from Bond Record in accordance with 27 CFR 24.310.
- Eligibility for using the small domestic wine producer credit is based on whether wine was produced by any of the methods listed in 27 CFR 24.278, within the limits given in the regulation. Regulation 27 CFR 24.278(e) states that production for small domestic wine producer credit purposes includes wine produced by fermentation and also includes any increases in the volume due to amelioration wine spirits addition sweetening production of formula wines, sparking wine, and wine produced by the company outside the United States. Note that wine produced by blending is NOT considered wine produced for the small producer’s credit purposes
How can you make sure that the tax is properly calculated and recorded?
- Review the second page of Excise Tax Return, TTB F 5000.24 http://www.ttb.gov/forms/f500024.pdf and the regulations pertaining to tax payments.
- Calculate the tax correctly
BWPs are required to immediately notify TTB and may be required to file a claim for allowance of loss for the loss or destruction in bond of wine or spirits including losses (a) in transit, (b) by fire or other casualty, or (c) any other extraordinary or unusual losses, including a loss by theft or bulk inventory losses over the allowable limits given in 27 CFR 24.266. If a claim for allowance of loss is due for any of the above listed situations, the proprietor must file a claim with TTB’s National Revenue Center (NRC) within 30 days of discovery of the loss.
The most common failures to file a claim are for transit losses exceeding 1% of shipment and bulk inventory losses. (See Inventory – Issue 2.)
One major issue found in audits is the information required to be given on the claim is incomplete. A claim for allowance of losses must be attached to, and submitted with, the TTB F 5120.17, Report of Wine Premises Operations, for the reporting period. The claim should contain this information:
(A) The original volume of wine which sustained the loss, the tax class, the quantity of wine lost, and the percentage of wine lost;
(B) Where the claim covers losses sustained at bonded wine premises during the tax year, the claim must state:
(i) The quantities of wine on hand at the beginning of the tax year, received in bond during the tax year, and produced during the tax year;
(ii) Where the percentage of loss is calculated separately by tax class, the volume of wine by tax class; and
(iii) If effervescent wine is produced, the volume of wine produced by fermentation in bottles, by artificial carbonation, and by bulk processing; and
(C) Claims covering losses of wine during transit in bond should show the volume lost from each container, the serial number, if any, and the volume shipped.
Claims for remission of tax on spirits or claims for an abatement of an assessment, or credit or refund of tax which has been paid or determined are described in 27 CFR 24.65.
How do you properly complete claims for losses or destruction of wine or spirits?
- Immediately report all losses from fire, casualty, and theft. Report bulk inventory losses in the month that the losses are revealed on the TTB 5120.17, Report of Wine Premises Operations. Claims for loss other than for wine lost in transit, by fire, extraordinary or unusual losses, including theft, will be attached to the TTB 5120.17. Provide all the information listed above on the claim form.
- Always calculate the losses in transit by measuring wine on arrival and comparing it to the amount shipped based on the bill of lading. If it exceeds 1%, you need to report it.
- Calculate bulk losses in accordance with 27 CFR 24.266. . See Inventory, Issue 2, “Inventory losses and reporting ”
The Excise Tax Return, TTB F 5000.24, must be filed on time - within 14 days after the end of the tax period with some exceptions: The September tax payments are submitted to cover three parts of the month rather than two, and the September tax periods for companies that are required to file taxes via Electronic Fund Transfer (EFT) differ from the tax periods for companies that are not required to EFT. The Excise Tax Return for annual filers must be postmarked no later than the 30th day after the close of the calendar year. The Excise Tax Return for quarterly filers must be postmarked no later than the 14th day after close of the calendar quarter. . Penalties and interest are assessed for filing late. If the due date falls on a Saturday, Sunday, or a holiday, the return must be filed on the prior business day.
A listing of the due dates is at http://www.ttb.gov/tax_audit/fed_ex_tax_due.shtml
Some of the larger BWPs are required to pay taxes via electronic funds transfer (EFT). Taxpayers who are liable during any calendar year for $5 million or more in excise tax imposed on wine are required to pay such tax during the following year by EFT. An electronic fund transfer is an account to account, transfer of funds from your bank to Fedwire, the Treasury's Account at the Federal Reserve Bank (FRB) of New York. For instructions on how to file EFT, see http://www.ttb.gov/procedures/91-1.shtml . (See 27 CFR 24.272.)
How can you ensure your tax is timely paid?
- Remember to check the due dates for each return period. (Plan to get the Excise Tax Returns and checks in the mail on time. The cost of being late is high.
- Although not required, it is a good idea to send the Excise Tax Return and check by registered mail. The receipt offers proof that you sent it on time.
- Large excise tax payers are required to pay via electronic fund transfer (EFT) in accordance with 27 CFR 24.272. Find instruction on how to file via EFT at http://www.ttb.gov/procedures/91-1.shtml . But, don’t forget, you still have to mail the Excise Tax Returns.
- Pay.Gov is an excellent way to file the Excise Tax Return, pay the tax due, and file the Report of Wine Premises Operations electronically. More information on Pay.Gov can be found at TTB’s website, http://www.ttb.gov/epayment/epayment.shtml .
You must file a TTB F 5000.8, Power of Attorney or another approved method of providing signature authority for everyone in your organization who signs TTB documents or acts on behalf of the company when interacting with TTB.
A common issue found by TTB is that unauthorized individuals sign the Reports of Wine Premises Operations or the Excise Tax Returns. When there is employee turnover, the proprietor often neglects to notify TTB that the signature authority granted to former employees is no longer applicable. A TTB F 5000.8 or some other approved method of providing signature authority must be filed for new employees that will sign TTB documents or act on behalf of the company.
How can you register the necessary signature authority for your representatives?
- Periodically review who has signature authority, especially when there is employee turnover or new ownership interests.
- Notify TTB when signature authority is no longer applicable to an individual.
- Among the methods of granting signature authority, you may complete and file a TTB F 5000.8, Power of Attorney, for anyone who signs TTB correspondence, Returns or Reports.
If a BWP is growing, lots of things are changing – equipment, buildings, perhaps alternating proprietors using the premises, officers, and maybe even ownership. Each time you make ownership changes or changes to the business, you must file an amended TTB F 5120.25, Application to Establish and Operate Wine Premises) and TTB F 5100.18, Application for Amended Basic Permit under the Federal Alcohol Administration Act). Each time you make major changes to the BWP buildings (doors, walls, and infrastructure) or add buildings or make changes in the use of any portion of the premises, a notice must be sent to the National Revenue Center in Cincinnati describing the change in detail.
Code of Federal Regulation 27 CFR 24.120 states that where there is a change in any of the information included in the last approved application (TTB F 5120.25, Application to Establish and Operate Wine Premises), the proprietor must submit an amended application within 30 days of the change. If the change affects only pages or parts of pages of the current application, only the correcting pages need be submitted.
Regulation 27 CFR 24.131 states that before making a change in building construction or use of premises, the proprietor shall notify TTB. The proprietor shall include the change covered by the notice in the next amended TTB F 5120.25 required to be filed.
How do you make sure that your Application to Establish and Operate Wine Premises and Application for Basic Permit under the Federal Alcohol Administration Act are current?
- If changes are made to the BWP buildings structure (doors, walls, infrastructure or new buildings), in the use of any portion of the premises such as new alternators, bonded area is changed, or new manufacturing is undertaken, a notice must be sent to the National Revenue Center in Cincinnati describing the change in detail.
- For major changes you will need to file an amended Application to Establish and Operate Wine Premises (TTB F 5120.25 at http://www.ttb.gov/forms/f512025.pdf ) and Application for Amended Basic Permit under the Federal Alcohol Administration Act (TTB F 5100.18 at http://www.ttb.gov/forms/f510018.pdf). You can use your original Application to Establish and Operate Wine Premises and Application for Basic Permit under the Federal Alcohol Administration Act as templates for the amended submissions.
As wine businesses grow, many BWP owners or management may neglect to update their bond. If your taxable removals have been growing, chances are good that you need to secure additional bond coverage.
There are three kinds of bonds and two kinds of bond coverage.
The three kinds of bonds on the Wine Bond form TTB F 5120.36 are: original, strengthening and superseding. The original bond is submitted only by new establishments or during a change of ownership. . A strengthening bond increases existing coverage–this is what you will use to increase bond coverage. A superseding bond replaces the existing coverage. To determine whether a strengthening bond or a superseding bond best meets your needs, discuss the options with your insurance broker and with a Wine Applications Specialist at TTB’s National Revenue Center.There are two kinds of bond coverage provided on the TTB F 5120.36: –operations coverage and deferral coverage . The wine operations coverage may not be less than the tax value of all untaxpaid wine and spirits on the bonded premises, in transit to the bonded premises and unaccounted for at any given time. This may be estimated using a “Bond Worksheet” at http://www.ttb.gov/forms/f512036worksheet.pdf . The maximum operations bond is $100,000. The tax deferral coverage must be not less than the taxes due but not yet paid on wine removed from the bonded premises for consumption or sale. The maximum deferral bond is $250,000.
27 CFR 24.146(a) requires a bond be given on form TTB F 5120.36, Wine Bond, to cover the liability for excise tax imposed by the Internal Revenue Code of 1986. The bond amounts are provided in the regulation.27 CFR 24.148. If the total operations coverage is $2,000 or more, $1,000 of the coverage may be allocated to cover the amount of tax determined but not paid.
You may calculate the deferral bond amount required using some ‘rules of thumb’, discussed below. A worksheet for determining the operations bond may be found at http://www.ttb.gov/forms/f512036worksheet.pdf .
For bond forms and instructions see http://www.ttb.gov/forms/bond_form.shtml.
How can you make sure that your bonds are adequate for your business?
- Review your bond coverage periodically to see if it is adequate.
- Calculate your wine operations bond coverage needs. To calculate the tax liability and corresponding penal sum of bond complete the worksheet provided at http://www.ttb.gov/forms/f512036worksheet.pdf .
- Calculate your tax deferral bond coverage needs. Your tax deferral bond must be not less than the amount of tax which, at any one time, has been determined but not paid.
A rule of thumb method for determining the tax deferral bond coverage necessary would be to look at last year’s taxable removals and determine your two highest consecutive semi-monthly periods (if you file twice monthly), or the highest quarter (for quarterly filings).
Taking semi-monthly filings as an example, to determine if your tax deferral bond coverage is sufficient, compare your current deferral bond coverage to the maximum amount of excise tax you estimate will be due during the period of your highest volume of taxable removals. This determination requires estimating what will be due, but not paid during your high-volume semi-monthly tax periods and during the 14 days to follow, until the tax is paid.
Example using last year (2008) taxable removals for guidance
| March 1-15 | Due March 29 |
$ 2,000 |
|
March 16-29 |
Outstanding liability |
500 |
|
|
Total liability March 1-29 |
$ 2,500 |
|
|
|
|
|
March 16-31 |
Due April 13 |
$ 5,000 |
|
April 1 - 13 |
Outstanding liability |
500 |
|
|
Total liability March 16-April 13 |
$ 5,500 |
|
|
|
|
|
April 1 - 15 |
Due April 27 |
$ 8,000 |
|
April 16 - 27 |
Outstanding liability |
2,000 |
|
|
Total liability April 1-April 27 |
$10,000 |
High point |
|
|
|
|
April 16 - 27 |
Due May 14 |
$ 7,500 |
|
May 1 - 14 |
Outstanding liability |
1,000 |
|
|
Total liability April 1-April 27 |
$ 8,500 |
|
|
|
|
|
Liabilities were the highest for April 1-27, so the deferral bond coverage should be not less than $10,000.
- If your bond requirements have changed, complete a Change of Bond TTB F 5000.18 or submit a strengthening or superseding TTB F 5120.36. For the bond form and instructions go to http://www.ttb.gov/forms/bond_form.shtml.
FORMS frequently used by Bonded Wine Premises
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Power of Attorney |
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Change of Bond (Consent of Surety) |
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Excise Tax Return |
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Pay.gov User Agreement |
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Signing Authority for Corporate and LLC Officials |
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Withdrawal of Spirits, Specially Denatured Spirits, or Wines for Exportation |
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Application for Amended Basic Permit Under Federal Alcohol Administration Act |
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Application for Basic Permit Under Federal Alcohol Administration Act |
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Report of Wine Premises Operations |
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Application to Establish and Operate Wine Premises |
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Wine Bond |
| Page last reviewed/updated: 09/04/2012 |
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