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Proposed Rule

Proposed Revision of Distilled Spirits Plant Regulations (2001R-194P)

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AGENCY:

Alcohol and Tobacco Tax and Trade Bureau, Treasury.

ACTION:

Notice of proposed rulemaking.

SUMMARY:

The Alcohol and Tobacco Tax and Trade Bureau (TTB) proposes to amend its distilled spirits plant regulations. Many of these proposed revisions are the result of comments submitted by the Distilled Spirits Council of the United States in response to a Bureau of Alcohol, Tobacco and Firearms notice of proposed rulemaking (NPRM) published in November 1998. Other proposed revisions are a result of a comprehensive TTB review of the distilled spirits plant regulations. This NPRM supersedes the NPRM issued in November 1998. We believe the proposed amendments will modernize the requirements for operating distilled spirits plants and make the regulations easier to understand, thereby allowing proprietors of such plants to operate in a more efficient manner. The proposed regulations are also written in a plain language format to improve clarity.

DATES:

We must receive your written comments on or before August 6, 2008.

ADDRESSES:

You may send comments on this notice to one of the following addresses:

  • http://www.regulations.gov (via the online comment form for this notice as posted within Docket No. TTB-2008-0004 on Regulations.gov, the Federal e-rulemaking portal); or
  • Mail: Director, Regulations and Rulings Division, Alcohol and Tobacco Tax and Trade Bureau, P.O. Box 14412, Washington, DC 20044-4412; or
  • Hand Delivery/Courier in lieu of Mail: Alcohol and Tobacco Tax and Trade Bureau, 1310 G Street, NW., Suite 200-E, Washington, DC 20005.

See the Public Participation section of this notice for specific instructions and requirements for submitting comments, and for information on how to request a public hearing.

You may view copies of this notice and any comments we receive about this proposal at http://www.regulations.gov. A direct link to the appropriate Regulations.gov docket is available under Notice No. 83 on the TTB Web site at http://www.ttb.gov/​spirits/​spirits_​rulemaking.shtml. You also may view copies of this notice and any comments we receive about this proposal by appointment at the TTB Information Resource Center, 1310 G Street, NW., Washington, DC 20220. To make an appointment, call 202-927-2400.

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FOR FURTHER INFORMATION CONTACT:

Daniel J. Hiland, Regulations and Rulings Division, Alcohol and Tobacco Tax and Trade Bureau, 1310 G Street NW., Suite 200-E, Washington, DC 20220; telephone 202-927-8176.

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SUPPLEMENTARY INFORMATION:

Table of Contents

Notice to Readers

Impact of the Homeland Security Act on this Rulemaking

I. Background Information for this Notice

A. Distilled Spirits Plant Operations under Current Law

  • Basic Definitions
  • Federal Laws and Regulatory Authority
  • Major Regulatory Provisions

B. Petition to Amend 27 CFR Part 19

C. General Changes Proposed in this Notice

  • Plain Language
  • Structure of Part 19
  • Redundancy with the Law
  • Alternate Methods or Procedures

D. Specific Changes Proposed in this Notice

  • Subpart A—General Provisions
  • Subpart B—Administrative and Miscellaneous Provisions
  • Subpart C—Restrictions on Production, Location, and Use of Plants
  • Subpart D—Registration of a Distilled Spirits Plant and Obtaining a Permit
  • Subpart E—Changes to Registrations and Permits
  • Subpart F—Bonds and Consents of Surety
  • Subpart G—Construction, Equipment, and Security Requirements ——
  • Subpart H—Special (Occupational) Tax
  • Subpart I—Distilled Spirits Taxes
  • Subpart J—Claims
  • Subpart K—Gauging
  • Subpart L—Production of Distilled Spirits
  • Subpart M—Storage of Distilled Spirits
  • Subpart N—Processing of Distilled Spirits
  • Subpart O—Denaturing Operations and Manufacture of Articles
  • Subpart P—Transfers, Receipts, and Withdrawals
  • Subpart Q—Return of Spirits to Bonded Premises and Voluntary Destruction
  • Subpart R—Losses and Shortages
  • Subpart S—Containers and Marks
  • Subpart T—Liquor Bottle, Label, and Closure Requirements
  • Subpart U—Reserved
  • Subpart V—Records and Reports
  • Subpart W—Production of Vinegar by the Vaporizing Process
  • Subpart X—Distilled Spirits for Fuel Use
  • Subpart Y—Paperwork Reduction Act

II. Derivation Table for Proposed Part 19

III. Public Participation

  • Comments Invited
  • Submitting Comments
  • Confidentiality
  • Public Disclosure

IV. Regulatory Analyses and Notices

V. Drafting Information

VI. List of Subjects

VII. Authority and Issuance

  • Text of the Proposed Rule

Notice to Readers—Impact of the Homeland Security Act on This Rulemaking

Effective January 24, 2003, the Homeland Security Act of 2002 (Pub. L. 107-296, 116 Stat. 2135 (2002)) divided the Bureau of Alcohol, Tobacco and Firearms (ATF) into two new agencies, the Alcohol and Tobacco Tax and Trade Bureau (TTB) in the Department of the Treasury and the Bureau of Alcohol, Tobacco, Firearms and Explosives in the Department of Justice. The regulation and taxation of alcohol beverages remains a function of the Department of the Treasury and is the responsibility of TTB. References to ATF in this notice reflect the time period prior to January 24, 2003, while references to TTB are after that date.

I. Background Information for This Notice

A. Distilled Spirits Plant Operations Under Current Law

Distilled spirits taxation is a specialized area of Federal law. The following background material provides basic information about how distilled spirits plants operate and are regulated under Federal law.

Basis Definitions

Distilled Spirits. The term “distilled spirits” refers to those products that contain ethyl alcohol and are generally the result of distillation. This term does not apply to wine and beer, which are products of fermentation. Examples of distilled spirits products include vodka, whiskey, gin, brandy, cordials, liqueurs, flavored brandies, and other similar products.

Distilled Spirits Plants. The term “Distilled Spirits Plant” (DSP) refers to a plant at which distilled spirits are manufactured or produced, aged or stored, or packaged or bottled, either for beverage or industrial use.

Federal Laws and Regulatory Authority

Federal law prohibits the manufacture or production of distilled spirits in the United States at other than a registered DSP that has received a permit from Start Printed Page 26201TTB. While Federal law allows for the limited home production of wine and beer, no such exemption exists for distilled spirits.

DSPs are regulated under the provisions of two laws, the Internal Revenue Code of 1986 (IRC) (Title 26 of the United States Code) and the Federal Alcohol Administration Act (FAA Act) (Title 27 of the United States Code). The IRC imposes an excise tax on distilled spirits, requires plants to register, requires plants to obtain permits not otherwise required by the FAA Act, and imposes strict controls over the operation of DSPs. The FAA Act imposes a requirement to obtain a basic permit and contains various consumer-protection provisions, including provisions related to the formulation, labeling, and advertising of alcohol beverages. The FAA Act also controls various trade practices within the alcohol industry.

Under these two laws, TTB regulates the distilled spirits industry in the United States. Each law authorizes the Secretary of the Treasury to prescribe regulations to carry out and enforce its provisions, and the Secretary has delegated this authority to TTB. The TTB regulations concerning DSPs are contained in title 27 of the Code of Federal Regulations, Part 19, Distilled Spirits Plants (27 CFR part 19).

Major Regulatory Provisions

A DSP consists of one or more of the following: production, storage, processing, denaturation, and bottling facilities. A DSP may be a large and complex plant, having all facilities, a simple storage facility consisting of only one building, or a small bottling facility with storage facilities. Production facilities are usually accompanied by some storage facilities. Bottling facilities are often accompanied by storage facilities, and must by law be accompanied by either a production or a storage facility. However, large storage facilities are often not accompanied by either of the other two types.

Registration. Before commencing operations, the DSP proprietor must obtain an approved notice of registration. This application for registration includes: documents to set up distilling apparatus, environmental impact forms, personnel questionnaires, signature authorities, and a statement of security.

Permits. Under the FAA Act, all persons who intend to engage in the business of: (a) Distilling spirits; (b) rectifying, blending, or bottling (processing) distilled spirits; or (c) warehousing and bottling distilled spirits, must file for a basic permit.

To maintain control over the industrial use of distilled spirits, the IRC requires that an operating permit be obtained before commencing the production, warehousing, or bottling of alcohol for industrial use. Specifically, a permit is required for:

  • Distilling for industrial use.
  • Bonded warehousing of spirits for industrial use.
  • Denaturation of spirits.
  • Bonded warehousing of spirits (without bottling) for non-industrial use.
  • Bottling or packaging of spirits for industrial use.
  • Any other distilling, warehousing, or bottling operations not required to be covered by a basic permit under the FAA Act.

DSP Bonded Premises. The physical premises of a DSP are divided into two technical categories: “bonded premises,” and unbonded or “general premises.” All activities relating to the distilling, storage, and processing (blending and mixing) of distilled spirits must be conducted on bonded premises. All activities relating to taxpaid alcohol beverages conducted at the distilled spirits plant must be conducted on general premises.

Operations as a distiller, warehouseman, or processor may be conducted only on the bonded premises of a DSP by a person qualified to carry on such operations under 27 CFR part 19 and who has obtained the basic permits required by 27 CFR part 1, or, as appropriate, the operating permit required by part 19. However, certain other activities, such as those of apothecaries, customs bonded warehousemen, manufacturers of nonbeverage products, and users of specially denatured alcohol, may be carried on outside of DSPs.

The continuity of a DSP must be unbroken except for separations that may include public waterways, thoroughfares, or carrier rights-of-way. In most instances, DSPs are also prohibited from being located in a dwelling house, in a shed, yard, or enclosure connected with a dwelling house, on board a vessel or boat, on premises where beer or wine is produced, in a retail liquor establishment, or where any other business is conducted.

Bonds. Normally, the distilled spirits tax is not collected while spirits are held on the “bonded” premises of a distilled spirits plant. The potential tax liability of the spirits held on bonded premises is guaranteed by an operations bond, and taxable removals are covered by a withdrawal bond.

The bond is a legally binding, written agreement involving three parties: the taxpayer, the surety (insurance or bonding company), and the U.S. Government. The purpose of the bond is to protect the financial interest of the Government. If for any reason, the taxpayer fails to pay the tax, then the surety (insurance or bonding company) is obliged to pay, up to the limit of the bond.

Other Requirements. In addition to registering, obtaining a permit, and providing a bond, plants are required to comply with a number of regulations relating to plant security; the production, storage, and processing of spirits; recordkeeping; inspection and audit; and filing of reports. These requirements are outlined in 27 CFR part 19.

Recordkeeping Accounts. All operations at a DSP are accounted for within three recordkeeping accounts: Production, Storage, and Processing. Since the facilities (tanks and rooms) of a DSP may be used for multiple purposes, the accountability of spirits must be maintained by appropriate records within the three accounts instead of physical separation.

Payment of Taxes. The Federal excise tax on distilled spirits attaches to the spirits as soon as they are produced, and the distilled spirits plant is held liable for the tax on all distilled spirits held in the bond premises. The amount of Federal excise tax that a distilled spirits plant must pay is based upon the taxable removal of the spirits from the bonded premises. There are two basic methods of paying the tax on distilled spirits withdrawn from bonded premises-deferred payment and prepayment. Under the deferred payment system, the proprietor may withdraw spirits from bond after tax determination but before payment of tax. The excise tax paid is based on the amount of spirits removed from bond during each return period. Under the prepayment system, the proprietor must pay the distilled spirits tax after tax determination but before withdrawal of the spirits from bonded premises. Most DSP proprietors use the deferred payment system.

Currently, the Federal excise tax rate on distilled spirits is $13.50 per proof gallon. The term “proof gallon” is unique to this particular commodity and means: a liquid gallon that contains 50 percent ethyl alcohol.

Although the tax rate for distilled spirits is $13.50 per proof gallon, many distilled spirits products are actually taxed at a lower rate. Many products contain wine and/or flavors, and the IRC at 26 U.S.C. 5010 provides a credit for the wine and flavors content of the product. These credits effectively Start Printed Page 26202reduce the rate of excise tax paid on distilled spirits products that contain wine and flavors.

Nontaxable Transactions. Certain types of shipments to and from a distilled spirits plant are permitted without payment of tax. Examples are:

  • Shipments of bulk (unbottled) spirits from one registered distilled spirits plant to another. (Bottled spirits are not eligible for untaxed transfer in bond between plants.)
  • Shipments of bulk imported spirits from U.S. Customs and Border Protection custody to a distilled spirits plant. (Only bulk imported spirits are eligible for this type of transfer.)
  • Direct exports of products from the United States.
  • Shipments to users of industrial alcohol (certain permit holders who use alcohol for medical, research, or industrial purposes).

B. Notice No. 870 and the Petition To Amend 27 CFR Part 19

On November 30, 1998, ATF issued a notice of proposed rulemaking, Notice No. 870 (63 FR 65720), that solicited comments on proposed changes to several sections of the regulations in 27 CFR part 19. The proposed changes included: (1) Delegations of authority, (2) removing a special tax provision, (3) liberalizing the requirement for approval of certain changes in plant personnel or procedures, (4) reducing the paperwork when plant premises are alternated with other premises, (5) providing for alternation of distilled spirits plant and brewery premises, (6) allowing denaturation and manufacture of articles to be done in a single, unified process, (7) specifying marks for packages of industrial spirits withdrawn taxpaid, (8) clarifying regulations that refer to a transfer record, and (9) incorporating a provision of an ATF Industry Circular regarding alcohol fuel into the regulations.

In addition to these proposed changes, ATF asked for comments regarding the general recordkeeping system for distilled spirits plants prescribed in part 19.

In response to Notice No. 870, ATF received extensive comments from the Distilled Spirits Council of the United States (DISCUS), a trade association representing distilled spirits industry members with interests in the U.S. market. While DISCUS provided comments on the specific issues raised in Notice No. 870, it also asked that ATF consider a broad range of regulatory changes to part 19. Essentially, in its comments on part 19, DISCUS asked ATF to initiate a complete revision of part 19. In support of its petition, DISCUS provided ATF with sample regulations that consisted of a “markup” version of 27 CFR part 19, along with numerous copies of variances (alternate methods or procedures) that ATF granted to members of the distilled spirits industry over the years. Suggested amendments included a broad range of issues, including, but not limited to, reduced recordkeeping requirements for distilled spirits plants, greater use of commercial records, reduced reporting requirements, reduced requirements for reporting changes affecting the DSP's registration, liberalized use of DSP premises, storage of distilled spirits on bonded premises through “constructive segregation” based on commercial records, and adoption of alternative methods in the regulations for universal applicability.

In response to Notice No. 870, ATF also received comments from Equistar Chemicals, LP. Equistar is a producer of industrial ethyl alcohol, and its comments addressed issues in Notice No. 870 related to industrial alcohol. Equistar also commented on other issues affecting distilled spirits plants such as the amendment of plant registrations, recordkeeping, denaturation, and gauging.

After reviewing the comments received in response to the Notice No. 870, ATF concluded that the amendments proposed in the 1998 NPRM were not extensive enough to address the changes that have taken place in the industry since the last major revision to the distilled spirits plant regulations took place over 20 years ago when ATF implemented the Distilled Spirits Tax Revision Act of 1979, commonly referred to as “All in Bond.”

As the successor agency to ATF, TTB undertook a comprehensive review of the distilled spirits plant regulations in 27 CFR part 19 and the comments received in response to Notice No. 870. This notice of proposed rulemaking is the result of that review, and this notice supersedes Notice No. 870. We believe the proposed amendments will modernize the requirements for operating distilled spirits plants and make the regulations easier to understand, thereby allowing proprietors of such plants to operate in a more efficient manner. A discussion of our new proposal to amend part 19 in a more comprehensive way follows.

C. General Changes Proposed in This Notice

The following summarizes the general changes we propose to make to 27 CFR part 19.

Plain Language

On June 1, 1998, the President issued a memorandum that requires Federal agencies to write regulations in “plain language.” We fully support this initiative, and we have written these proposed regulations in the plain language style. In an effort to make these regulations easier to understand, we made several plain language changes to the part 19 regulations:

  • We use the active voice in the regulations, whenever possible;
  • We use shorter sentences, paragraphs, and sections; and
  • We minimize the use of jargon and unnecessary technical terms.

Structure of Part 19

In its comments on part 19, DISCUS points out that part 19 is “excessively long, overcomplicated and very difficult to read.” Further, it stated that the regulations are “divided into 25 subparts, with many related and overlapping provisions included in two or more subparts.” DISCUS recommends “consolidating and re-grouping a number of regulatory provisions which are closely related, eliminating regulations which merely are redundant of each other or the statute, adding cross-references to related regulations, and clarifying regulatory language.”

We reviewed the various sections and subparts in the current part 19 and determined that much of the basic structure for part 19 needs to be amended. Under the current structure, information is not always located where a reader would logically expect to find it.

For example, under the current regulations, information regarding distilled spirits taxes is found in two separate subparts, Subpart C, Taxes, and Subpart P, Transfers and Withdrawals. Subpart C contains much of the basic information about distilled spirits taxes, including the methods for calculating tax credits under the IRC at 26 U.S.C. 5010. However, information regarding determination of taxes and the filing of tax returns is located in subpart P. Logically, all information associated with distilled spirits taxes should appear within the same subpart. The proposed regulations consolidate all of the information concerning distilled spirits taxes into a new Subpart I, Distilled Spirits Taxes. Similarly, we reviewed all of the major topics covered in part 19 and attempted to group them together in a more logical order. Accordingly, this proposed, amended version of part 19 has been restructured with new subparts and related Start Printed Page 26203information has been consolidated, where appropriate, into a single subpart. In addition, duplicative sections have been eliminated. The intent of this restructuring is to assist the reader and make it easier to locate related topics within part 19.

The proposed subparts are as follows:

  • Subpart A—General Provisions
  • Subpart B—Administrative and Miscellaneous Provisions
  • Subpart C—Restrictions on Production, Location, and Use of Plants
  • Subpart D—Registration of a Distilled Spirits Plant and Obtaining a Permit
  • Subpart E—Changes to Registrations and Permits
  • Subpart F—Bonds and Consents of Surety
  • Subpart G—Construction, Equipment, and Security Requirements
  • Subpart H—Special (Occupational) Tax
  • Subpart I—Distilled Spirits Taxes
  • Subpart J—Claims
  • Subpart K—Gauging
  • Subpart L—Production of Distilled Spirits
  • Subpart M—Storage of Distilled Spirits
  • Subpart N—Processing of Distilled Spirits
  • Subpart O—Denaturing Operations and Manufacture of Articles
  • Subpart P—Transfers, Receipts, and Withdrawals
  • Subpart Q—Return of Spirits to Bonded Premises and Voluntary Destruction
  • Subpart R—Losses and Shortages
  • Subpart S—Containers and Marks
  • Subpart T—Liquor Bottle, Label, and Closure Requirements
  • Subpart U—Reserved
  • Subpart V—Records and Reports
  • Subpart W—Production of Vinegar by the Vaporizing Process
  • Subpart X—Distilled Spirits for Fuel Use
  • Subpart Y—Paperwork Reduction Act

Redundancy With the Law

In its comments on part 19, DISCUS recommends that several sections of the regulations be deleted because those sections are “redundant with the law.” DISCUS notes that many of the sections simply repeat provisions of law contained in title 26 of the IRC. DISCUS recommends we delete these redundant sections of part 19 or revise the regulations to simply reference the appropriate section of the IRC.

TTB recognizes that some sections of the part 19 regulations repeat provisions of the IRC. However, we intend that the part 19 regulations provide users with a comprehensive and complete body of the requirements for operating a distilled spirits plant. By making part 19 a complete reference tool, persons researching a particular issue will not need access to both the IRC and the regulations. Therefore, when a provision of law affects operations at a distilled spirits plant, we included that provision in part 19. However, in some instances, we deleted sections of the regulations that simply repeated information found in other regulations within part 19.

Alternate Methods or Procedures.

Periodically, TTB allows industry members to use an alternate method or procedure in lieu of a specific regulatory requirement in part 19. The current regulation at 27 CFR 19.62 describes how DSP proprietors may apply for an alternate method or procedure. Section 19.62 also describes the criteria that TTB uses when evaluating such requests. Generally, TTB may approve the use of an alternate method or procedure when:

  • Good cause has been shown for use of the alternate method or procedure,
  • The alternate method or procedure is consistent with the intent of the regulation, and
  • The alternate method or procedure is not contrary to the law.

Over the years, DSP proprietors have applied for a wide range of alternate methods or procedures in lieu of the requirements stated in part 19. We have evaluated these requests on a case-by-case basis using the criteria established in 27 CFR 19.62, and we have approved many of these requests. Industry members commonly refer to these alternate methods or procedures as “variances.”

As part of its comments on part 19, DISCUS submitted numerous copies of variances that have been granted to members of the distilled spirits industry. The variances submitted by DISCUS were divided into three general categories, recordkeeping, separation of premises, and “other.” In its comments, DISCUS asserts that ATF granted variances from many of the regulatory requirements and that it is not aware of any variance that has caused any problems with Federal excise tax compliance. DISCUS recommends that variances granted to individual plant proprietors be extended to all plants in the revised regulations.

In response to this suggestion, TTB reviewed the individual variances submitted by DISCUS for possible applicability to all distilled spirits plants. We found that many variances did, in fact, have general applicability to all plants. As a result, we have incorporated many of those methods or procedures into the proposed regulations, where appropriate. For example:

  • Several variances were issued that allowed for the use of computer-generated records. This proposal has been adopted into the revised regulations at § 19.572 and is discussed later in this preamble under our discussion of Records in subpart V.
  • Several variances were issued that allowed for computer-generated reports and computer-generated transaction forms. These proposals were adopted into the revised regulations at § 19.634, and are discussed later in this preamble under our discussion of records in subpart V.
  • A variance was issued that allows for the filing of letterhead notices to report certain changes at a plant. This procedure providing for the use of letterhead notices has been incorporated into the new subpart E and is explained more fully under our discussion of subpart E.
  • Several variances were issued that allow for the use of “commercial records” to record transactions and/or operations. The use of documents created in the ordinary course of business, rather than documents created expressly to meet the requirements of part 19 is now provided for in the proposed regulations at § 19.572 in subpart V.
  • A variance was issued that allows modified “abbreviations” to be used. The proposed regulations will not prescribe any official abbreviations for use on forms and records to identify spirits, and the provisions of current § 19.726, which prescribe official abbreviations have been deleted from the proposed regulations. However, we will continue to list authorized abbreviations for marking containers found in the current regulations at § 19.612.
  • A variance was issued that allows filled, capped, and labeled bottles to remain on the bottling line at the end of each work day if the same brand and size will be produced on the next bottling shift. This variance was incorporated into the proposed regulations at § 19.358 and is discussed under subpart N.
  • A variance that allows the bottling of liqueurs from a tank truck or tote was incorporated into the proposed regulations at § 19.352 and is discussed under subpart N.
  • A variance whereby certain small tanks are not required to be mounted on scales was incorporated into the proposed regulations at § 19.183 and is discussed under subpart G. Start Printed Page 26204
  • Several variances have been approved that allow for the use of meters in gauging spirits for purposes other than tax determination. We are proposing significant changes in the new regulations that will allow for the use of accurate mass flow meters, without prior approval by TTB, for bulk tax determination gauges and other required gauges at a distilled spirits plant if the meters meet certain criteria for accuracy.

During our review of the variances submitted by DISCUS, we also found several that were not appropriate for incorporation into the new, revised regulations. In some instances, we did not wish to apply the provisions of a particular alternate method or procedure to all DSP proprietors without regard to their compliance history and other factors. As such, proprietors may continue to apply for these types of alternate methods or procedures, and we will evaluate them on a case-by-case basis.

For example, we have issued several variances to DSP proprietors regarding the timing and frequency of required inventories for bulk and cased spirits. In evaluating this type of variance, we frequently consider the compliance history of the particular plant, shortages and gains disclosed by past inventories, along with other factors. Accordingly, this type of authorization does not have general applicability and is not appropriate for inclusion in the new proposed regulations. However, we will continue to approve this type of request, when appropriate, on a case-by-case basis.

In other instances, the subject matter of a particular variance only applied to a very specific situation at a single plant and was, therefore, not applicable to all plants. Accordingly, we did not incorporate this type of variance into the new proposed regulations. For example:

  • We approved several variances in regard to case markings that did not have general application to the case markings used by other plants.
  • We approved a “business day” for a plant that runs from 2 a.m. through 1:59 a.m. This type of variance does not have general applicability to other plants.

In summary, we have incorporated a number of existing variances into the proposed regulations where appropriate, and when the variance would have general applicability to the industry.

D. Specific Changes Proposed in This Notice

The following is a discussion of the new, revised subparts in 27 CFR part 19 and the specific changes that we propose to make in the part 19 regulations.

Subpart A—General Provisions

Proposed subpart A includes several sections that have general applicability to part 19, including a revised definitions section, a section that defines the territorial extent of the regulations, and a section that identifies other regulations that relate to part 19.

In the proposed definitions section at § 19.1, we propose some minor amendments to the language used within this section to clarify the meaning of some terms. We also propose to add some new terms and delete an outdated term found in the current definitions section. We propose to add the terms “accurate mass flow meter,” “general premises,” “letterhead application,” “letterhead notice,” “National Revenue Center,” “TTB officer,” and “we.” We propose to delete the term “region director.”

We also propose to move two sections currently located in subpart D, under the heading “Activities Not Subject To This Part,” to subpart A. The relocated sections are § 19.4, Recovery and reuse of denatured spirits in manufacturing processes, and § 19.5, Manufacturing products unfit for beverage use, which are currently found at §§ 19.57 and 19.58, respectively.

Subpart B—Administrative and Miscellaneous Provisions

Proposed subpart B contains the administrative and miscellaneous provisions for part 19 that are currently found in subpart D. However, some sections of regulations that are located in the current subpart D have been relocated to other revised subparts, where appropriate. For example, we propose to move sections relating to gauging to the new proposed Subpart K, Gauging. Similarly, we propose to relocate sections relating to the conveyance of spirits or wines on plant premises to the new proposed Subpart C, Restrictions, Location, and Use of Plants.

Proposed subpart B includes a “penalty of perjury” section that is currently located at § 19.100. In its comments on part 19, DISCUS proposes the deletion of the requirement that documents be executed under penalties of perjury from several sections of regulations. DISCUS states that “these penalties are unnecessary and excessive in light of the fact that a proprietor's permit is subject to revocation under the Federal Alcohol Administration Act for failure to comply with the Bureau's requirements.” TTB did not adopt this proposal. The penalty of perjury statement is an important safeguard that places legal responsibility for the truthfulness of significant documents filed with TTB on the documents' signatories. Generally, we do not require the “penalty of perjury” statement on most documents and records. Its use is generally restricted to claims, tax returns, applications, and similar documents. The IRC at 26 U.S.C. 6065 states, “Except as otherwise provided by the Secretary, any return, declaration, statement, or other document required to be made under any provisions of the internal revenue laws or regulations shall contain or be verified by a written declaration that it is made under penalties of perjury.” Consistent with the IRC at 26 U.S.C. 6065 and along with the other tax collection agencies within the Department of the Treasury, TTB requires that such documents be signed under penalties of perjury. The penalty of perjury provision in the proposed regulations is located at § 19.45.

Subpart C—Restrictions on Production, Location, and Use of Plants

Proposed subpart C covers restrictions associated with the operation of a distilled spirits plant, along with the location and use of DSP premises. In its comments on part 19, DISCUS makes several recommendations affecting those sections of the current regulations that govern restrictions, locations, and use of DSP premises. We discuss these recommendations and our responses below.

Restrictions regarding location. Currently, 27 CFR 19.131 provides that a distilled spirits plant may not be located 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. DISCUS contends that physical separation of commodities is meaningless and recommends that this restriction be amended to allow a distilled spirits plant to be located on such premises if the proprietor's records show the separate operations. We did not adopt this proposal because Federal law does not provide for “constructive” separation of premises by records only. The language of this regulation is derived directly from the language of the IRC at 26 U.S.C. 5178(a)(1)(B), which states that a distilled spirits plant shall not be located “on premises where beer or wine is made or produced, or liquors of any description are retailed, or on premises where any other business is carried on (except when authorized under subsection (b)).” This Start Printed Page 26205provision appears in the proposed regulations at § 19.52.

Continuity of premises. Currently, the regulation at § 19.132 provides that the physical continuity of a distilled spirits plant must be unbroken except for separation by public waterways, thoroughfares, or carrier rights-of-way. However, TTB may approve other separations of the plant premises when all parts of the plant are in the “same general location.” DISCUS recommends that the term “same general location” mean within 200 miles of the distilled spirits plant.

We did not adopt this recommendation in the proposed regulations. Although DISCUS states that a “200 mile rule” would provide increased operational flexibility for proprietors, they do not explain how this would occur under their proposal and why that distance is more appropriate than any other.

Over the years TTB has received a number of requests to establish non-contiguous distilled spirits plant premises. We have evaluated each of these requests on a case-by-case basis. In our evaluation of each request, we consider a number of factors, such as:

  • Security and protection of the revenue,
  • Distance between the main plant premises and the proposed non-contiguous premises,
  • Whether the non-contiguous premises would cross State lines,
  • Whether the non-contiguous premises will facilitate inspections and audits, and
  • Whether establishment of non-contiguous premises would provide the proprietor with a means for delaying payment of taxes.

We propose to retain the case-by-case analysis based on multiple factors, instead of adopting a 200 mile rule as proposed by DISCUS. As a general rule, we believe that the “same general location” must not be too large an area so that the revenue is placed at risk. Also, because a distance of 200 miles could extend over a multi-state area and would cross over into different field offices within TTB, such a distance would create administrative difficulties for TTB. This provision appears in the proposed regulations at § 19.53.

Other businesses. Currently, the regulation at § 19.68 provides that TTB may authorize the carrying on of other businesses (not otherwise prohibited) on DSP premises under certain conditions. The other businesses should not pose a jeopardy to the revenue, hinder the effective administration of part 19, or be contrary to law. There is a similar section of regulations at § 19.72. DISCUS recommends the removal of § 19.68 since it is redundant with § 19.72.

We agree that §§ 19.68 and 19.72 are very similar, and we have merged the two sections into a single section within the proposed regulations at § 19.55.

Bonded warehouses not on premises qualified for production of spirits. The current regulation at § 19.134 allows for the establishment of a bonded warehouse on premises that are not qualified for the production of spirits, if the need for such is clearly established. DISCUS recommends the amendment of this section by adding language stating that the warehouse may be within 200 miles of the main plant. We did not adopt this recommendation for the same reasons discussed above under the heading, “Continuity of Premises.” This provision is found in the proposed regulations at § 19.56.

Taxpaid spirits or wines on bonded premises. The current regulation at § 19.97 provides that spirits or wines on which the tax has been paid or determined may be conveyed across bonded premises but cannot be stored or remain on bonded premises, and must be kept separate and apart from spirits or wines on which the tax has not been paid or determined. DISCUS recommends the addition of new language to this section whereby the area where taxpaid spirits or wines are stored will not be considered bonded premises if the proprietor's records show that the tax has been paid or determined. They state that their proposal would “shift the focus from the outdated requirement of physical segregation to a modernized, efficient approach based upon ‘constructive segregation.’ ”

We did not adopt this recommendation because the IRC does not allow for the separation of premises solely by records. The IRC at 26 U.S.C. 5612 clearly states that taxpaid or tax determined spirits cannot be stored on bonded premises. Further, the bonded area of a DSP is a clearly defined physical area of the plant with clearly defined boundaries. It is not an area defined only by records of the type of spirits stored on the premises. In our proposed regulations, this section is now found at § 19.58.

Conveyance of untaxed spirits or wines within a distilled spirits plant. Currently, the regulation at § 19.98 provides that untaxed spirits or wines can be conveyed between different bonded areas of a plant and across areas of a plant that are not bonded. DISCUS recommends the amendment of this section by adding language whereby if the proprietor's records show the tax has not been paid or determined, then the untaxed spirits will be considered to be on bonded premises (constructive segregation).

We did not adopt this recommendation because the regulation already allows for the transfer of untaxed spirits across areas of a plant that are not bonded. The amendment proposed by DISCUS would only incorporate the idea of “constructive segregation” into this section of the regulations. However, since the regulation already allows for transfers across areas of the plant that are not bonded, the amendment proposed by DISCUS is not necessary. This section of the regulations is now found at § 19.59 in the proposed regulations.

Spirits in customs custody. Currently, the regulation at § 19.99 provides that spirits in customs custody may be conveyed across DSP premises under certain conditions. Those conditions include:

  • The spirits may not be stored or allowed to remain on DSP premises.
  • The spirits must be kept separate from other spirits on DSP premises.
  • The means and route of conveyance must be approved.
  • The proprietor must file a consent of surety.

DISCUS recommends the addition of language to this section whereby if the proprietor's records show that spirits are in customs custody, then the area where the spirits are stored will not be considered part of the DSP premises.

We did not adopt this DISCUS recommendation for several reasons. First, this section of regulations deals with conveyance of spirits in customs custody across DSP premises. It does not deal with the storage of such spirits on DSP premises.

In addition, TTB bonded premises and customs bonded premises are two distinct types of bonded premises. TTB bonded premises are established under the laws and regulations administered by the Alcohol and Tobacco Tax and Trade Bureau, while customs bonded premises are established under a separate set of laws and regulations administered by U.S. Customs and Border Protection. As such, the premises cannot be co-located, and there is no basis in the law for constructive segregation of these bonded premises by records only. The bonded area of a DSP is a clearly defined physical area of the plant with clearly defined boundaries. It is not an area defined only by records. In our proposed regulations, this section is now found at § 19.60.

Production of distilled spirits for personal use. Frequently, TTB receives Start Printed Page 26206questions from the general public asking whether the law allows for the production of distilled spirits in the home for personal use. Under Federal law (26 U.S.C. 5171), distilled spirits may only be produced at a registered distilled spirits plant. Therefore, we propose to add a new section to subpart C, which will explain that a person may not distill spirits at home for personal use. This new section is found in the proposed regulation at § 19.51.

Subpart D—Registration of a Distilled Spirits Plant and Obtaining a Permit

The current regulations governing the qualification of a distilled spirits plant are found in subpart G. These regulations cover a number of issues, including the requirements for plant registration, operating permits, alternation of premises, and amending registrations and operating permits.

Proposed subpart D covers the initial registration of a distilled spirits plant and procedures for obtaining an operating permit. We propose to assign regulations concerning changes after the original qualification of the plant to the new subpart E.

In the proposed subpart D, we also propose to rearrange the information related to the qualification of a distilled spirits plant in a more logical order. For example, we propose to group all registration information together under a heading titled “Requirements for Registering a Plant,” while information relating to operating permits is grouped together under a separate heading titled “Requirements for an Operating Permit Under the I.R.C.” In the current regulations, much of the information regarding registration and operating permits is intermingled. We believe that separating these subjects will make it easier for readers to understand which requirements apply to plant registration and which requirements apply to operating permits.

Other businesses. In its comments on part 19, DISCUS proposes the inclusion of a cross-reference at § 19.152 of the current regulations, indicating that “other businesses” may be allowed under a separate section of the regulations. We adopted this proposal in the proposed regulations at § 19.73(b).

Major equipment. DISCUS also recommends in its comments that the requirement to list major equipment on the application for registration, currently found at § 19.166, be amended. First, it states that the regulation should be clarified to provide that “major equipment” must be identified in the registration only if it is “set up” and “used for distillation, redistillation, or recovery of spirits.”

We adopted this suggestion in part. We do not see any need to list major equipment in the application that is not “set up” and used for the production, storage, or processing of spirits. Therefore, we have inserted language in the proposed regulations at § 19.75, which requires that equipment be listed if it is “set up” and used for the production, storage, or processing of spirits.

DISCUS also recommends that a paragraph be added to § 19.166 stating that “bulk containers of less than 101 wine gallon capacity and not meeting the criteria of a tank under § 19.273 (such as perks and small totes) are not items of major equipment and are not required to be listed in the application for registration.” This recommendation is reasonable because such containers are not items of major equipment, and we include it in the proposed regulation at § 19.75.

In addition, DISCUS recommends that the requirement to provide a “statement of certification of accurate calibration” for tanks found in the current regulations at §§ 19.166 and 19.273(a)(6) be eliminated. This recommendation is reasonable and has been adopted in the proposed regulations because it only involves eliminating a requirement to include a “statement of certification of accurate calibration” in the notice of registration. The proposed regulation at § 19.182 will continue to require that tanks be accurately calibrated.

Registration file. The IRC at 26 U.S.C. 5171(c) requires that persons must apply for and receive a notice of registration before commencing business as a distilled spirits plant. In regard to the maintenance of the registration file, currently at § 19.155, DISCUS recommends the addition of language to allow the registration file to be kept in computerized records. We did not adopt this proposal because registration documents are normally submitted to TTB in a hard-copy format and returned to the proprietor by TTB in hard-copy format. DISCUS also recommended the elimination of the requirement that the registration file be kept “at the plant.” We did not adopt this proposal because the file must be readily available for inspection by appropriate TTB officers.

LLCs and LLPs. The current regulations governing qualification of a distilled spirits plant in subpart G only acknowledge three types of business organizations, sole proprietorships, partnerships, and corporations. In view of the increasing use of limited liability companies (LLCs) and limited liability partnerships (LLPs), we have included instructions for these types of business organizations in the proposed regulations at § 19.93.

Subpart E—Changes to Registrations and Permits

Proposed subpart E includes the regulations governing changes to the distilled spirits plant registration, changes to operating permits, and alternation of plant premises. Similar to the changes that we propose in new subpart D, much of the information in the new subpart E is arranged in a more logical order. For example, matters affecting changes to registration are grouped together under the heading titled “Rules for Amending a Registration,” and matters affecting changes to operating permits are grouped together under the heading titled “Rules for Amending an Operating Permit.”

In the current regulations, much of the information regarding changes to the registration and changes to the operating permit is intermingled. As with new subpart D, we believe that separating these subjects will make it easier for readers to understand the specific requirements that apply to amending either the plant registration or the operating permit.

Letterhead notices and letterhead applications. In its comments on part 19, DISCUS makes several recommendations regarding how proprietors should apply for changes to a plant's registration or operating permit. Generally, DISCUS recommends that, in most instances, the regulations allow proprietors to request changes by filing a letterhead notice. In its petition, DISCUS states that:

Subpart G provisions regarding changes in the information shown in the original registration should be revised to eliminate unnecessary prior submissions and prior approval requirements. Similar to our alternation proposals, 27 CFR 19.180, 19.82 and 19.183 (application for amended registration, change in name of proprietor and change of trade name, respectively) should be amended to provide that a proprietor file a letterhead notice reporting any change within 30 days after the change. Further, 27 CFR 19.184 and 19.185 (changes to largest stockholders and changes in officers and directors, respectively) should be revised to provide identical treatment (i.e., reported in the next amended registration) because there is no reason to treat these changes differently.

TTB agrees that we should simplify the amendment of registrations and permits wherever possible. Accordingly, we are proposing to expand the use of both letterhead notices and letterhead applications for reporting changes to the registration and permit. We will allow the use of letterhead notices to report Start Printed Page 26207minor changes affecting the registration or permit. We will allow for the use of letterhead applications for more substantive changes but these must be approved by TTB prior to the change. The use of amended applications, letterhead applications, and letterhead notices are discussed in the proposed regulations at §§ 19.112 and 19.126.

Changes in the statement of plant security. In the current regulation at § 19.153(b), an application for amended plant registration (form TTB F 5110.41) must be filed each time there is a change in plant personnel or procedures contained in the statement of security. In Notice No. 870, ATF proposed to liberalize this requirement. Therefore, we propose that § 19.153(b) be amended to require that a letterhead application be filed for changes in the security procedures listed in § 19.153(a)(1)-(4), and that a letterhead notice be filed for changes in the personnel listed in § 19.153(a)(5). Thus, the letterhead application or letterhead notice would replace the amended registration that was required each time that the information in § 19.153(a)(1)-(5) changed. The plant registration would be updated on an annual basis to incorporate changes made during the preceding year.

In its comments on Notice No. 870, Equistar Chemicals states that it endorses the proposed changes and would encourage any additional efforts to facilitate compliance through reducing nonessential paperwork. However, Equistar asks for some clarification of this proposal. It pointed out that the proposal allows companies to submit a “letterhead application” and “letterhead notice” for changes. Equistar states that it presumes that we intended companies to simply send an informal letter notifying the agency of procedure or personnel changes. The company asks for a clarification of these terms.

In response to this request for clarification, TTB advises that the terms “letterhead application” and “letterhead notice” refer to a letter from a company representative, with signature authority, on company letterhead (see definitions). The “letterhead application” is subject to TTB approval prior to the change; however, the “letterhead notice” is not subject to prior approval. These terms are now fully explained in the proposed regulations at §§ 19.112 and 19.126.

Equistar also points out that “the proposal requires a letterhead application for `changes in any of the information' listed in the sections of the Statement of Physical Security that address procedural changes.” The company states that a requirement to advise us of “any changes” is overly broad and could encompass non-substantive as well as substantive changes. Equistar recommends that we maintain the rule's original language that covers changes in “procedure” rather than “any changes.”

The current regulation governing changes in plant security, which appears at § 19.153, has been rewritten to clarify the type of changes that may be reported to TTB by letterhead application or letterhead notice. In our proposed regulations, this section is now located at § 19.123.

In its response to Notice No. 870, DISCUS states that it supports the proposal whereby a distilled spirits plant would file a letterhead notice instead of an amended registration for changes in the information provided under 27 CFR 19.153(a)(5). However, DISCUS recommends the deletion of the word “security” from the proposed term “security personnel listed in paragraph (a)(5).” DISCUS states that the term “security personnel” is not used in paragraph (a)(5) and is not synonymous with the persons covered by paragraph (a)(5).

We agree that the term “security personnel” is not an accurate term. Therefore, we propose deleting the word “security” from the proposed regulation at § 19.76.

DISCUS also recommends that the regulations conform their treatment of changes in § 19.153(a)(1)-(4) to the proposed changes in paragraph (a)(5). DISCUS asks that the regulations allow these changes to be reported by a letterhead notice within 30 days after the changes. DISCUS states that the information required by paragraphs (a)(1)-(4) and (a)(5) concern the same issues, and “no reason exists to subject subsection (a)(5) to different treatment than subsections (a)(1)-(a)(4).”

In response to this recommendation, TTB advises that the information at § 19.153 is part of the data for an “application” for registration (27 CFR 19.152(k)). As such, the items of information provided under § 19.153 are subject to pre-approval for initial qualification of a distilled spirits plant and continued qualification of each plant. Further, the items listed under § 19.153(a)(1) through (4) represent crucial physical security features of a plant and must, therefore, be subject to prior approval by TTB. In contrast, the information required by § 19.153(a)(5) is a listing of persons having responsibility for custody and access to keys for approved locks at the distilled spirits plant. Since plants are free to designate the persons responsible for such custody, this particular item of information is not something that needs to be pre-approved. Therefore, this item will be treated as a “notification” rather than an “application.” These changes now appear in the new, proposed regulations §§ 19.76 and 19.123.

Change in name of proprietor. The current regulation at § 19.182 requires that the proprietor file an application to amend the registration and the operating permit whenever there is a change in the name of the proprietor. DISCUS recommends the amendment of that regulation to allow the filing of a letterhead notice within 30 days of the name change, and that the new information be included in the next application to amend the registration and the next application to amend the operating and/or basic permit filed by the proprietor. DISCUS also recommends deleting from the current regulations the phrase, “Operations may not be conducted under the new name prior to approval of the amended registration and issuance of the amended permit.”

The provisions of the current regulation at § 19.182 will be covered in the proposed regulations at §§ 19.113 and 19.128, and the proposed regulations will no longer require the filing of amended applications. Instead, the proposed regulations will allow for the filing of a letterhead application. However, since a change in the proprietor's name is a substantive change, the proposed regulation will still prohibit operations conducted under the new name before TTB approves the letterhead application.

Change of trade name. The current regulation at § 19.183 requires that the proprietor file an application to amend the operating permit when there is a change in the trade name of the proprietor. Operations may not be conducted under the new trade name until the amended permit is approved. DISCUS recommends the amendment of the regulation to allow for the filing of a letterhead notice within 30 days of the change and no longer require an application to amend the operating permit.

In the proposed regulation at § 19.129, TTB will no longer require the filing of an amended application. Instead, the proposed regulation will allow for the filing of a letterhead application. However, since any change in the trade names used by the proprietor is a substantive change, the proposed regulations will still prohibit operations conducted under the new trade name prior to TTB's approval of the letterhead application.

Change of stockholders. The current regulation at § 19.184 allows for the filing of an annual report of changes in Start Printed Page 26208major stockholders except where the sale or transfer of capital stock results in a change in control or management. In its comments on part 19, DISCUS recommends that the language of the regulation be amended to read, “Changes in the list of stockholders furnished under the provision of Sec. 19.167(c)(1) shall be reported in the next application for amended registration on Form 5110.41 filed by the proprietor.”

In the proposed regulations at §§ 19.114 and 19.130 we will allow a proprietor to submit an annual letterhead notice regarding changes in major stockholders. Under the proposed regulations, the changes must be incorporated in the next application filed, unless a change of control occurs. If a change in control takes place, § 19.114 requires that the proprietor must file TTB F 5110.41, Registration of Distilled Spirits Plant, within 30 days of the change, and § 19.130 requires that the proprietor must file TTB F 5110.25, Application for Operating Permit Under 5171(d), within 30 days of the change.

Changes in officers and directors. The current regulation at § 19.185 requires that a proprietor file an application for amended registration on Form 5110.41 when there is a change in the list of officers or directors. DISCUS recommends that the regulation be amended to state that the proprietor will report the change on the next application on TTB F 5110.41 for amended registration filed by the proprietor.

In the proposed regulations at §§ 19.115 and 19.131, we propose to allow a proprietor to submit a letterhead notice at the time of the changes and incorporate the changes in the next application for amended registration filed on form TTB F 5110.41 and the next form TTB F 5110.25 filed.

Permit transfers. In its comment on Notice No. 870, Equistar Chemicals asked that ATF (BATF in its comment) examine ways to minimize the paperwork and notice requirements associated with ATF permits when a change of ownership occurs. Equistar states:

BATF should examine ways to minimize the paperwork and notice requirements necessary to transfer BATF permit ownership in order to facilitate a smoother and less burdensome transition to the acquiring entity. Because the Securities and Exchange Commission (SEC) obtains copious records on publicly traded companies, perhaps BATF could coordinate efforts with SEC in cases where the acquiring entity is a publicly traded company and obtain company information through existing government databases. Alternatively, BATF could also prevent duplication by allowing companies to submit their annual reports in lieu of filling out numerous forms and applications. Such solutions would simultaneously facilitate BATF's access to companies' business information and alleviate the burden on companies who must currently submit new documentation of standard business information to each governmental branch who requests it.

In general, TTB agrees that we should simplify the amendment of registrations and permits wherever possible. For this reason, we propose to expand the use of both letterhead notices and letterhead applications for reporting changes to the registration and the operating permit.

However, in regard to utilizing SEC filings in cases where there is a change in ownership or control, there are several problems. First, much of the information that a proprietor submits in support of a plant registration or an operating permit is specific to distilled spirits operations. As such, this type of information, except for some similar items of information, is not required by agencies such as the SEC and so copies of such submissions would be inadequate for TTB purposes.

Adoption of formulas. The current regulation at § 19.187 provides for the adoption of formulas by a successor. DISCUS recommends in its comments on part 19 that the regulation refer to 27 CFR 5.28 and that the language in § 19.187 which is redundant with § 5.28 be removed.

In the proposed regulations we eliminated § 19.187 as a separate section of regulations and we have incorporated references to the adoption of formulas and §§ 5.28 and 20.63 into the proposed regulations at §§ 19.116 and 19.132.

Changes in premises. The current regulation at § 19.190 refers to several sections of regulations relating to alternation of premises. DISCUS recommends the amendment of these references to ensure the accuracy of cross-references to other appropriate sections in part 19. The accuracy of cross-references is important so we propose to amend the references at proposed § 19.119 to reflect the new section numbers for alternation of premises.

Change in operations. The current regulation at § 19.191 requires that a DSP proprietor file an application to amend the registration and operating permit if the proprietor wishes to engage in a new business involving distilled spirits. This section also applies to conducting other businesses on DSP premises. DISCUS recommends the addition of language to the end of this section stating, “Applications may be approved as provided in Sec. 19.72.”

In the proposed regulation at § 19.120, we now include a reference to § 19.55, which is the section of regulations relating to other businesses.

Changes in construction or use of buildings and equipment. The current regulation at § 19.193 requires a DSP proprietor to submit a letterhead notice prior to a material change in construction or use of buildings or equipment and then incorporate the change into the next amendment of the notice of registration. DISCUS recommends the elimination of most of this section because it is redundant with the general instructions relating to applications for amended registration found at § 19.180.

We did not eliminate this section because we do not believe that it is redundant. Similar to the other sections in this subpart, it provides specific instructions for amending the registration. The provisions of current § 19.193 appear in the proposed regulations at § 19.122.

Procedures for alternation of proprietors. The current regulation at § 19.201 covers the procedures that proprietors must follow when DSP premises, or part of the premises, are alternated between different proprietors. Alternation of premises refers to the formal, legal transfer of operations from one proprietor to another proprietor. DISCUS proposes to amend this regulation by eliminating the requirement to provide a diagram of the area of the plant to be alternated. Further, DISCUS proposes that language be inserted into the regulation that would allow the proprietor's production, storage, and processing records to be used to document the alternation of proprietors.

We did not adopt this DISCUS proposal. Records of production, storage, and processing are used to record the details of production, storage, and processing activities at a plant. These records are not designed to officially document the alternation of plant premises from one proprietor to another proprietor. Further, such records would not identify the actual bonded areas of the plant that are alternated; only a diagram can provide this information. However, we did substantially rewrite this section of the regulations to clarify the procedure for alternating proprietors. In addition, the requirement to file Form 5110.34 has been replaced with the requirement to file a letterhead notice with TTB when such alternations occur. The proposed amended section appears at § 19.141.

Alternate operations. The current regulation at § 19.202 provides for the alternate use of plant premises and equipment for customs purposes whereby the premises of the plant are Start Printed Page 26209converted from TTB bonded premises to Customs bonded premises. The current regulation also requires that the proprietor file a notice on Form 5110.34 whenever the plant premises are curtailed or extended for customs purposes. In Notice No. 870 ATF proposed to substitute a letterhead notice for the filing of Form 5110.34 each time that distilled spirits plant premises are alternated for customs purposes.

The current regulations at §§ 19.203 through 19.206 provide for the alternation of distilled spirits plant premises with bonded wine cellar premises, taxpaid wine bottling house premises, general premises, and premises for the manufacture of eligible flavors. The current regulations also require that the proprietor file a notice on Form 5110.34 whenever the premises are curtailed or extended for these purposes. In Notice No. 870, ATF proposed to simplify this requirement by amending §§ 19.203 through 19.206 to provide that after a proprietor has received approval for the alternation plan that defines the boundary of the premises to be alternated, the alternation may take place pursuant to records kept in a logbook. In Notice No. 870, ATF listed the requirements for the proposed logbook record in a new section of regulations at § 19.781. In Notice No. 870, ATF also proposed to allow for the alternation of distilled spirits plant and brewery premises under the same conditions. Alternation of distilled spirits plant premises and brewery premises is not provided for in the current regulations.

In its comments on Notice No. 870, DISCUS expresses support for the proposal to eliminate the requirement to file Form 5110.34 each time that the premises are alternated. However, DISCUS does not support the proposal to require a proprietor to prepare a logbook containing the information required by proposed § 19.781 each time that the proprietor alternates premises. DISCUS states that “this proposal runs contrary to the objective of effective regulatory reform; [sic] to replace formal recordkeeping requirements with reliance upon commercial business records maintained in the ordinary course of business.” Further, DISCUS contends that the proposal does not eliminate the requirements for prior submission and prior approval or the requirement to physically segregate products by type (wine, beer, spirits, or flavors). It asserts that the requirement in the regulations to segregate products is burdensome and that companies can track, distinguish, and identify products and operations by computer. DISCUS also asserts that “ `constructive segregation' of product by computerized records protects BATF's regulatory objectives, without the inefficient use of space and time and effort inherent in requiring physical separation.”

DISCUS recommends that the regulations allow alternation under §§ 19.202 through 19.206 if the distilled spirits plant proprietor files a letterhead notice reporting the alternation within 30 days after the alternation takes place. It also proposes that the proprietor's ordinary business records be used to substantiate the alternation and that we eliminate the requirement to physically separate products as currently required.

For the reasons discussed earlier in this notice, TTB is not adopting these recommendations regarding dependence upon company records for segregation of goods and reliance upon “constructive segregation.” As stated earlier, the IRC does not provide for the separation of premises solely by records. Further, the bonded area of a DSP is a clearly defined physical area of the plant with clearly defined boundaries. It is not an area defined only by commercial records.

Therefore, in this current notice we propose a new section of regulations at § 19.142 to provide for the alternation of premises for customs purposes whereby proprietors will file a letterhead notice with TTB prior to any alternation of premises. We have also eliminated the requirement to file Form 5110.34. We do not agree with the DISCUS proposal that would allow notices to be filed up to 30 days after the fact. Thus, the proposed regulation at § 19.142 will require that the letterhead notice must be filed prior to alternation of premises for customs purposes.

In addition, we propose a new, single section of regulations at § 19.143 that will provide for extension and curtailment of distilled spirits plant bonded premises with either general premises, an adjacent bonded wine cellar, an adjacent taxpaid wine bottling house, an adjacent brewery, or facilities for the manufacture of eligible flavors. Under our proposed regulations, proprietors will document such alternations in the record prescribed in proposed § 19.627 at the time the alternation occurs, and we will not require the filing of a letterhead notice with TTB or the filing of form TTB F 5110.34. The record prescribed in proposed § 19.627 will allow for the use of commercial records, when the commercial records provide the same information required by § 19.627 and are retrievable and available for inspection by TTB officers. Because of the variability of commercial records, we believe that there is a need to provide minimum standards for the commercial records that document alternation of premises. Further, the proposed regulation at § 19.143 will still require the segregation of products. We disagree with the DISCUS recommendation that would allow for the “constructive segregation” of products based on computerized records. This is not an actual segregation of product as required by law at 26 U.S.C. 5178(a)(1)(B) and 5612 and could result in the commingling of taxpaid and non-taxpaid product.

Subpart F—Bonds and Consents of Surety

Proposed subpart F covers the bonding of distilled spirits plants. For the most part, this subpart contains the same information found in current regulations at subpart H, except that the proposed regulations are written in plain language.

However, the proposed regulation at § 19.163 will allow persons who operate more than one distilled spirits plant serviced by TTB's National Revenue Center to give TTB a single area operations bond that covers the operations of two or more distilled spirits plants and adjacent bonded wine cellars located within the same geographic area. For practical purposes this means that, since TTB's National Revenue Center services the entire United States, a proprietor's operations bond may cover all of the proprietor's plants in the United States.

DISCUS did not recommend any substantive changes to these regulations in its comments on part 19. However, it did recommend that the requirement to execute a bond under penalties of perjury be deleted. This recommendation is not being considered in this proposed rule for the reasons discussed earlier in this notice.

Subpart G—Construction, Equipment, and Security Requirements

Under the current regulations in part 19, construction, equipment, and security issues are covered at subpart I. In the regulations proposed by this notice, those issues will be covered in the new proposed subpart G. The following is a discussion of the changes we that propose in the new subpart G.

Construction of buildings. The current regulation at § 19.271, Construction of buildings, will not be included in the proposed regulations. We found that it simply repeats requirements already found in §§ 19.281(a) and 19.281(b).

Equipment. The current regulation at § 19.272, Equipment, will also be deleted. We found that it simply repeats Start Printed Page 26210requirements found in several other sections of the current regulations including: §§ 19.152(h), 19.152(k), 19.153, 19.166, and 19.281(a), (c), and (d).

Tanks. DISCUS recommends that the requirement to permanently mount scale tanks on scales should not apply to tanks that do not exceed a 55-gallon capacity. This proposal is reasonable because such small tanks are intended to be portable and there is no need to mount them permanently on scales. Therefore, we adopted this recommendation in the proposed regulation at § 19.183(b).

Continuous distilling system. We propose to eliminate the current regulation at § 19.275, Continuous distilling system, from the regulations in the new proposed subpart G. The requirement for a continuous distilling system is already covered in the proposed regulations at Subpart L, Production of Distilled Spirits, and we found § 19.275 of the current regulations to be redundant.

Meters. During the course of certain operations at distilled spirits plants, proprietors are required to measure the volume of distilled spirits. When measuring spirits for purposes other than tax determination, the regulations require that the spirits be measured in a tank or a conveyance using calibration charts. The current regulation at § 19.277 also allows for the use of meters when measuring spirits for purposes other than tax determination. However, in order to use a meter, the proprietor must first submit an application to TTB, along with technical data regarding the meter they intend to use. TTB must approve the meter prior to its use at a plant.

In its petition and markup of part 19, DISCUS proposes the elimination of the prior approval requirement for meters. DISCUS states that this requirement imposes unnecessary and time-consuming burdens on TTB resources and the industry and serves only to delay operations at a DSP. DISCUS states that the proprietor should be responsible for using and maintaining accurate equipment.

After careful consideration of this proposal, TTB has decided to propose significant changes in the new proposed regulations whereby a proprietor may use mass flow meters for all required bulk gauges at a distilled spirits plant, including bulk tax determination gauges, if the meters meet certain criteria for accuracy. This will reduce the burden on industry members and TTB while ensuring the accuracy of bulk measurements.

Accordingly, the proposed regulation at § 19.188(c) provides that a proprietor may use a mass flow meter for tax determination of bulk spirits if the meter is certified by the manufacturer or other qualified person as accurate within a tolerance of +/−0.1%. For all other required gauges of bulk spirits at a distilled spirits plant, a proprietor may use a mass flow meter if it is certified by the manufacturer or other qualified person as accurate within a tolerance of +/−0.5%. For both tax determination gauges and all other required gauges, the proprietor must make corrections for the temperature of the spirits being measured in conjunction with the volumetric measurement of spirits by mass flow meter. The proprietor must also test mass flow meters at least every 6 months to ensure that they are accurate within the required tolerances.

Miscellaneous changes. In addition to the changes proposed above, TTB also proposes to make several editorial changes in subpart G that will make the regulations easier to understand. For example, the current regulation at § 19.273, Tanks, has been divided into several shorter sections covering: (a) The general requirements for tanks, (b) scale tanks, (c) graduation of scale tanks, and (d) testing for accuracy. The proposed, shorter sections are found at §§ 19.182, 19.183, 19.184, and 19.185.

Subpart H—Special (Occupational) Tax

On October 22, 2004, the President signed into law the American Jobs Creation Act of 2004 (the Act), Public Law 108-357, 118 Stat. 1418. Section 246 of the Act amended the IRC by providing that, during the 3-year period from July 1, 2005 through June 30, 2008, the rate of special (occupational) tax imposed under IRC sections 5081, 5091, 5111, 5121, and 5131 is zero. The effect of this provision is that proprietors of distilled spirits plants, including alcohol fuel plants and certain other proprietors, are not subject to special (occupational) tax during the suspension period. However, although the tax rate for the occupations affected by the suspension is zero during the suspension period, the IRC still requires that persons engaging in those occupations must register annually and comply with all applicable recordkeeping requirements. On October 31, 2005, TTB issued Treasury decision T.D.TTB-36 (70 FR 62238) which implemented this provision of the Act by amending the special (occupational) tax regulations in part 19 and other affected parts.

On August 10, 2005, the President signed into law the Safe, Accountable, Efficient Transportation Equity Act: A Legacy for Users, Public Law 109-59, 119 Stat. 1144. Section 11125 of this act repeals the special (occupational) tax applicable to proprietors of distilled spirits plants. This provision will become effective on July 1, 2008.

The special (occupational) tax regulations proposed in this notice are located in proposed subpart H and are based upon the American Jobs Creation Act of 2004. Thus, they provide for a suspension of the special (occupational) tax through June 30, 2008. However, prior to the effective date of section 11125 of the Safe, Accountable, Efficient Transportation Equity Act, TTB intends to develop and issue regulations for all parts in title 27 of the Code of Federal Regulations that are affected by the special tax repeal provisions of that act. Therefore, the regulatory text in the final rule associated with this notice of proposed rulemaking will reflect the statutory provisions that are in effect when that final rule is published.

Subpart I—Distilled Spirits Taxes

Under the current regulations, information regarding payment of the distilled spirits taxes is found in two separate subparts, Subpart C, Taxes, and Subpart P, Transfers and Withdrawals. Subpart C contains much of the basic information about distilled spirits taxes, plus the methods for calculating tax credits under the IRC at 26 U.S.C. 5010. Information regarding determination of taxes and the filing of tax returns is located in subpart P.

Logically, all information associated with distilled spirits taxes should appear in the same subpart. Therefore, the proposed regulations consolidate all of the information relating to distilled spirits taxes currently found in subparts C and P plus several other miscellaneous tax provisions currently located in other subparts into a new proposed Subpart I, Distilled Spirits Taxes.

General sections. In addition to consolidating the tax information currently found in subpart C and P, we have created several new general sections within the proposed subpart I. These new sections discuss issues such as deferred payment and prepayment of taxes, and the tax credits provided under 26 U.S.C. 5010. These general sections are intended to give the reader a brief introduction to some of the more complex subject matter within proposed subpart I.

Gallonage taxes. In its comments on part 19, DISCUS recommends the elimination of several sections of the current Subpart C regulations that appear under the heading “gallonage taxes.” This includes §§ 19.21, 19.22, Start Printed Page 2621119.23, 19.24, 19.25, and 19.26. DISCUS states that these sections are redundant with the IRC.

TTB agrees that many of these sections of regulations repeat provisions of the IRC. However, as stated earlier in this notice, we intend that the regulations in part 19 provide users with a comprehensive and complete guide to the requirements for operating a distilled spirits plant, and where appropriate, we will repeat certain statutory requirements in the regulations. We do not wish to unnecessarily require readers of these regulations to reference both the IRC and the regulations when researching an issue. Therefore, we propose to retain most of the information provided in current §§ 19.21, 19.22, 19.23, 19.24, 19.25, and 19.26 in proposed Subpart I.

Inventory reserve account. In its markup of part 19, DISCUS also proposes the deletion of § 19.38, which provides for an inventory reserve account. The inventory reserve account is one of the optional methods that a proprietor may use for applying effective tax rates under the IRC at 26 U.S.C. 5010. DISCUS offers no explanation for deleting this section. In the proposed regulations, we retained this section in order to provide industry members with another option in determining the method for applying effective tax rates.

Subpart J—Claims

Under the current regulations in part 19, the subject of “Claims” is covered as a subcategory of subpart C, Taxes. In these proposed regulations, we have relocated the regulations related to claims into a new, separate subpart J. Most of the changes to the regulations in proposed subpart J are relatively minor and are intended to improve the language and thereby make the regulations easier to comprehend.

Under the current regulations governing claims, only distilled spirits that were withdrawn from a domestic distilled spirits plant may be returned to a distilled spirits plant and a claim filed. We propose to amend the language of the regulations in proposed Subpart J, Claims, and in Subpart Q, Return of Spirits to Bonded Premises and Voluntary Destruction, to reflect the fact that imported bottled spirits that were taxpaid or tax determined when imported into the United States may be returned to a distilled spirits plant and a claim filed. This change reflects an amendment to the law at 26 U.S.C. 5008(c), which became effective on April 1, 1998.

Subpart K—Gauging

We propose to establish a new subpart K that will amend and consolidate gauging instructions that are currently located in several different subparts within part 19 at §§ 19.84, 19.91, 19.92, 19.93, 19.319, and 19.503.

We believe that placing gauging issues within a single subpart will assist the reader in locating gauging information that was formerly located within administrative and miscellaneous subparts. We have also restructured several of the sections relating to gauging to make them easier to understand. We also propose to amend several of the regulations relating to gauging.

Meters. Under the current regulations at § 19.277(c), TTB may authorize proprietors to use a meter for measuring quantities of spirits for purposes other than tax determination. In order to receive authorization to use a meter for this purpose, § 19.277 requires that the proprietor make an application to the appropriate TTB officer that includes technical data about the meter such as make, model, and the accuracy tolerance. TTB must then evaluate the data to determine whether the meter is suitable for the intended use before approving its use. The current regulations do not provide for the use of meters for bulk tax determination gauges.

Under the proposed regulations at § 19.284, TTB would allow for the use of mass flow meters for both bulk tax determination gauges and all other bulk gauges that must be performed at a distilled spirits plant. Further, the proprietor's use of mass flow meters would not be subject to prior approval by TTB. Instead, the proposed regulations establish standards of accuracy that a mass flow meter must meet for use in bulk tax determination gauges and a separate standard of accuracy for all other bulk gauges. As proposed, a mass flow meter used for tax determination gauges must be certified by the manufacturer or other qualified person as accurate within a tolerance of ±0.1%. A mass flow meter used for all other required gauges must be certified by the manufacturer or other qualified person as accurate within a tolerance of ±0.5%.

In its comments on part 19, DISCUS recommends amending the current regulation at § 19.319(a) by deleting the requirement to use an “approved meter” for volume determinations in the production gauge. We propose to change this requirement by substituting the term “accurate mass flow meter” for the term “approved meter.” Thus, the volume determination on the production gauge can be made using an “accurate mass flow meter.” This change appears in the proposed regulations at § 19.289.

For several years, TTB has seen an increased interest in the use of meters by proprietors of distilled spirits plants. Further, manufacturers of meters have improved the accuracy of their mass flow meters. The proposed regulations will give proprietors the opportunity to take advantage of the improved performance of mass flow meters and modernize operations at their plants without the need to seek prior approval from TTB.

Spirits in receiving tanks. DISCUS recommends the deletion of a sentence from the current regulation at § 19.319(a) that states, “Spirits in each receiving tank shall be gauged before reduction in proof and both before and after each removal of spirits therefrom.” We did not adopt this recommendation because we need accurate measurements of spirits removed from production, including a measurement of the spirits before and after removal from the receiving tank. This provision is found in the proposed regulations at § 19.289(a).

Gauge record for packages filled. DISCUS also recommends the deletion of the requirement for a gauge record for each lot of packages filled, found in the current regulation at § 19.319(d). We did not adopt this recommendation. We continue to need this type of information and we will continue to require a gauge record for each lot of packages filled. This provision is now found in the proposed regulations at § 19.289(d).

Other industry proposals. DISCUS also recommends that gauges no longer be required when spirits are filled into packages from storage tanks and when spirits are transferred between operational accounts. We did not adopt these changes in the proposed regulations. We believe that these gauges are still an important means of accounting for spirits within the plant.

The current regulation at § 19.91(b) covers the gauging of alcoholic flavoring materials when dumped. The regulation states that when proof of the flavoring materials is determined from a label or the manufacturer's statement, the proprietor must periodically test a sufficient number of samples and record the results in the gauge record. DISCUS recommends the elimination of the requirement to record those results in a gauge record. TTB has adopted this recommendation in the proposed regulations at § 19.287. This is a relatively minor gauging requirement, Start Printed Page 26212and we see no reason to require a record for such gauges.

In its comment on Notice No. 870, Equistar Chemicals asks that the requirement in the current regulations at § 19.503 and § 30.43 be clarified. The company states that the existing regulations appear to require the establishment of a separate tare for each package individually gauged. The term “tare” refers to the weight of an empty package. They propose that TTB allow for an average tare in order to facilitate packaging by reducing the time involved in recording a gauge and tare for each package. We did not adopt this recommendation. TTB requires an accurate gauge of spirits that are withdrawn from bonded premises. A package (drum, barrel, or similar container; see § 19.1 definition) is so large that the variance in tare can be significant. This means that the proprietor must establish the actual tare of each package to be withdrawn from bond. This requirement appears in the proposed regulations at § 19.288.

Subpart L—Production of Distilled Spirits

Under the current regulations in part 19, production of distilled spirits is covered at subpart J. In the regulations proposed by this notice, production issues will be covered in proposed subpart L. In its comments on part 19, DISCUS recommends several changes affecting the regulations that govern production of distilled spirits. Below is a summary of the recommended changes and TTB's evaluation of those recommendations. Also discussed is a proposed change to a regulation based on an amendment to the IRC at section 5222(b)(2).

Notices. The current regulation at § 19.311 requires a proprietor to file a notice on Form 5110.34 with the appropriate TTB officer prior to commencing, resuming, or suspending production operations. DISCUS recommends that the proprietor simply file a letterhead notice for such actions. This recommendation is reasonable because the filing of a letterhead notice accomplishes the same objective as the filing of a form. We adopted this recommendation in the proposed regulations at § 19.292.

Suspension of reports. DISCUS recommends that during periods when production operations are suspended, the regulations should not require proprietors to file reports of production under current subpart W. This recommendation is reasonable because TTB does not need to receive reports of no activity, and we adopted this recommendation in the proposed regulations at §§ 19.292(c) and 19.632.

Record of fermenting material. DISCUS recommends amendment of the current regulation at § 19.314 by the deletion of the requirement to maintain a record of fermenting material removed from or used on bonded premises for other purposes. We did not adopt this recommendation. The IRC at 26 U.S.C. 5207(a)(1)(A) specifically requires that the proprietor maintain records of the receipt of materials intended for use in the production of distilled spirits, and the use thereof.

Unfinished spirits. The current regulation at § 19.316 discusses the requirements for a continuous distillation system and redistillation of unfinished spirits. DISCUS recommends amendment of this section of regulation by the deletion of the requirement to determine the quantity and proof of unfinished spirits produced from distilling materials. We did not adopt this recommendation because this type of record is required by the IRC at 26 U.S.C. 5207(a)(1)(C).

Entry gauge. DISCUS recommends amendment of the current regulation at § 19.321 by the insertion of language that would allow the production gauge to be used as the entry gauge when spirits are deposited for storage or processing at the same plant and entered for redistillation at the same plant. This is a reasonable recommendation because a single gauge will be sufficient as the production gauge and the entry gauge and we adopted this recommendation in the proposed regulation at § 19.306.

Record of tests. DISCUS also recommends that the current regulation at § 19.326 be amended by deleting a requirement to maintain a record of tests for the spirits content of chemicals produced by the production process. We did not adopt this recommendation. The proprietor is required by this section of regulations to test chemicals for spirits content. We believe that it is reasonable that the proprietor keep a record of such tests in order to document that the spirits content of chemicals removed from the premises does not exceed the 10 percent by volume limit imposed by the proposed regulation at § 19.308.

Production inventories. DISCUS recommends amendment of the current regulation at § 19.329 by changing the requirement to conduct an inventory from a quarterly to an annual basis. We did not adopt this recommendation. For inventories that involve bulk liquids in tanks, one inventory per year is not adequate to accurately keep track of quantities on hand and detect losses in a timely manner. The shorter time period between inventories makes it easier for both TTB and a proprietor to reconcile any discrepancies and thereby protect the revenue. This requirement has been retained in the proposed regulations at § 19.312.

Receipts of beer. The current regulation at § 19.312 provides that fermented material to be used in the production of spirits may include beer if it is produced at a brewery contiguous to the distilled spirits plant. Thus, under current regulations beer may only be received at a distilled spirits plant from a brewery that is contiguous to the plant. However, in 1997, Public Law 105-34 amended the IRC at 26 U.S.C. 5222(b)(2) by removing the requirement that beer may only be received from contiguous brewery premises. Instead, 26 U.S.C. 5222(b)(2) now provides that fermented material to be used in the production of distilled spirits may include beer conveyed without payment of tax from brewery premises and beer which has been lawfully removed from brewery premises upon determination of tax. This provision has been incorporated into the proposed regulations at § 19.296.

Subpart M—Storage of Distilled Spirits

Under the current regulations in part 19, the storage of distilled spirits is covered at subpart L. In these proposed regulations, issues related to the storage of distilled spirits will be covered under subpart M.

In its comments on part 19, DISCUS recommends several changes to the regulations that govern the storage of distilled spirits. Below is a summary of the recommended changes and TTB's evaluation of those recommendations.

Tanks. The current regulation at § 19.342(b) states that if “spirits or wines are being deposited in a partially filled tank in storage on bonded premises, simultaneous withdrawals may not be made therefrom unless the flow of spirits or wines into and out of the tank is being measured by meters or other devices approved by the appropriate TTB officer which permit a determination of the quantity being deposited and the quantity being removed.” DISCUS recommends that this subparagraph be deleted. We agree, and we have deleted this subparagraph from the proposed regulations because we consider this to be a common-sense issue rather than an issue that needs to be spelled out in the regulations. In addition, we believe that the requirement to conduct proper gauging is sufficiently covered in the proposed Subpart K, Gauging.

Filling packages from tanks. The current regulation at § 19.344 states that Start Printed Page 26213spirits or wines in a tank must be gauged before and after filling packages from the tank on bonded premises. DISCUS recommends that this section of regulations be deleted. We disagree with this recommendation. This type of gauge is needed in order to properly account for spirits in the storage account and thereby protect the revenue.

Packages dumped for mingling. The current regulation at § 19.347 states that when packages are dumped for mingling, the proprietor must record such mingling on a tank record or tank summary record. DISCUS recommends that this section be eliminated. We disagree because the mingling of spirits needs to be documented on a record in order to properly account for spirits in the storage account and thereby protect the revenue.

Mingling spirits or wines held in tanks. The current regulation at § 19.349 states that when spirits of less than 190° of proof or wines are mingled in a tank, the proprietor must perform a gauge and record the gauge on the tank record. DISCUS recommends that this section be deleted. We disagree because the result of such mingling needs to be gauged and documented on a record in order to account for spirits in the storage account.

Storage inventories. The current regulation at § 19.353 requires each warehouseman to take a physical inventory of all spirits and wines in tanks at the close of each calendar quarter. DISCUS recommends that this requirement be changed to an annual inventory. We did not adopt this recommendation. One inventory per year is not adequate to accurately keep track of the quantity of spirits and wines on hand and detect losses in a timely manner. The shorter time period between inventories makes it easier for both TTB and a proprietor to reconcile any discrepancies and thereby protect the revenue.

Subpart N—Processing of Distilled Spirits

Under the current regulations, processing operations other than denaturation and manufacture of articles is covered at subpart M. In these proposed regulations, the processing of distilled spirits will be covered under proposed subpart N. Denaturation of spirits and manufacture of articles will be covered under proposed subpart O.

In its comments on part 19, DISCUS recommends several changes to the regulations that govern the processing of distilled spirits. Below is a summary of its recommended changes and TTB's evaluation of those recommendations.

Receipt of spirits. DISCUS recommends amendment of the current regulation at § 19.372(b) by adding a sentence allowing the shipper's gauge for bulk spirits to be used as the receiving gauge. We did not adopt this proposal. This suggested change would eliminate the receiving gauge for transfers in bond of bulk spirits and there would be no basis for determining whether a loss of spirits occurred during the shipment, thereby posing a jeopardy to the revenue.

Bottling tanks. The current regulation at § 19.382 requires that spirits be bottled from bottling tanks. However, TTB can authorize bottling from original packages or special containers if the proprietor files a notice with TTB explaining such need. DISCUS recommends that language be inserted into this section that would allow liqueurs to be bottled from a tank truck or tote without our prior approval. TTB has previously approved several requests for the bottling of liqueurs directly from tank trucks or totes because this is a reasonable method for handling products such as liqueurs and we adopted this recommendation in the proposed regulation at § 19.352.

Alcohol content and fill. The current regulation at § 19.386 requires that proprietors conduct proof and fill checks of bottled spirits at regular intervals and record the results of those tests. These tests are conducted to ensure that the actual proof and fill of bottled spirits agree with the alcohol content and quantity stated on the label. DISCUS recommends that proprietors no longer be required to record the results of those tests as required by § 19.386(c). We did not adopt this recommendation in the proposed regulations. We believe that the recording of the proof and fill checks is important because it documents whether the proprietor is properly conducting the tests as required by the regulation.

Completion of bottling. The current regulation at § 19.387 requires that when the contents of a bottling tank are not completely bottled at the end of the day, the proprietor must make entries on the bottling and packaging record covering the total quantity bottled that day. DISCUS recommends that this requirement be deleted from the regulations. We did not adopt this recommendation. The bottling and packaging record represents a record of bottling and packaging activity at the plant and the record should reflect the bottling and packaging activity that takes place on a daily basis.

Bottles on the bottling line at the end of the work day. In its comments on part 19, DISCUS states that when the bottling of a particular product run is not completed by the end of the day and is to be resumed on the following work day, § 19.388(a)(1) requires removal of all bottles on the line and packing them in cases that must be sealed. DISCUS recommends that TTB allow proprietors to keep filled bottles on the line at the end of the work day, if the same sized product will be produced on the next bottling shift. DISCUS states that proprietors can save substantial amounts of money if this proposal is adopted in the regulations. After careful consideration, we believe that this proposal is reasonable because it will save both time and expense for proprietors without jeopardizing the revenue. Therefore, we are proposing this change in the proposed regulation at § 19.358(b).

Remnants. The current regulation at § 19.389 covers remnant bottles that remain after the completion of bottling. Remnants are the few bottles that may remain after completion of bottling. This regulation requires that notations be made on the bottling record regarding remnant bottles. In their proposal, DISCUS recommends that we delete some of the recordkeeping provisions that relate to remnant bottles. Their suggestion is reasonable because it will eliminate paperwork for the proprietor without jeopardizing the revenue. We are proposing this change in the proposed regulation at § 19.359.

Filling packages. The current regulation at § 19.390 requires that spirits filled into packages on processing premises be gauged and the results recorded on a package gauge record. DISCUS recommends that this requirement be eliminated. We did not adopt this recommendation because without such a gauge, there would be no record of the amount of spirits filled into packages.

Daily summary record. The current regulation at § 19.400 requires that a daily summary record of bottling and packaging be prepared as required by § 19.751. DISCUS recommends that this section be deleted. While no specific reason was given, this recommendation to delete § 19.400 appears to be part of the general proposal by DISCUS to eliminate all daily records. We did not adopt this recommendation. Our reasons for maintaining daily records are explained in our discussion of Subpart V, Records and Reports.

While we did not retain § 19.400 as a separate section in the proposed regulations, it has been combined with the current regulation at § 19.384, Preparation of bottling or packaging Start Printed Page 26214record. The new combined section will now appear at § 19.354.

Bulk inventories. The current regulation at § 19.401 requires that the proprietor conduct a physical inventory of bulk wine and spirits in the processing account at the close of each calendar quarter. DISCUS recommends that this requirement be changed to an annual inventory. We did not adopt this recommendation. One inventory per year is not adequate to accurately keep track of the quantity of spirits and wines on hand and detect losses in a timely manner. The shorter time period between inventories makes it easier for both TTB and a proprietor to reconcile any discrepancies and thereby protect the revenue.

Inventory of bottled and packaged spirits. The current regulation at § 19.402 requires that the proprietor conduct a physical inventory of bottled and packaged spirits twice each year. DISCUS recommends that this requirement be changed to once a year. We did not adopt this recommendation. There is already an allowance in the current regulation at § 19.402 whereby the proprietor may request permission to conduct a single inventory each year. TTB believes that a single inventory may be adequate for some plants, but it is not adequate for others. Approval to take a single inventory may be obtained provided the proprietor maintains accurate records and an annual inventory will not make protecting the revenue more difficult. To require only one inventory per year in all cases in the regulations would weaken TTB's control and protection of the revenue in those plants where more than one inventory per year is desirable.

Variations in fill. The current regulation at § 19.386 provides criteria for slight variations in the alcohol content and the fill of bottled distilled spirits that may occur during bottling operations. Acceptable variations in alcohol content (proof) are well defined and very specific in the regulation at § 19.386(b). However, this is not the case for variations in fill. As stated in § 19.386(b), the proprietor must rebottle, recondition, or relabel spirits if the bottle contents do not agree with the label, “except for such variation as may occur in filling conducted in compliance with good commercial practice with an overall objective of maintaining 100 percent fill for spirits bottled.” We believe that this criteria could be improved and we propose to establish a standard whereby there must be approximately the same number of overfills and underfills for each lot bottled and in no case may the quantity in a bottle vary by more than plus or minus two percent from the quantity stated on the label. This new clarification appears in the proposed regulation at § 19.356(b).

Subpart O—Denaturing Operations and Manufacture of Articles

Under the current regulations in part 19, denaturing operations are covered under subpart N. In these proposed regulations, denaturing operations will be covered under proposed subpart O. In their individual responses to Notice No. 870, DISCUS and Equistar Chemicals proposed changes to the regulations governing denaturation. Below is a discussion of the recommended changes and TTB's evaluation of those recommendations.

Gauge for denaturation. The current regulation at § 19.454 states that the measurement of spirits and denaturants shall be made by volume, weight, approved meter, or, when approved by the Director, by other devices or methods. In its markup of part 19, submitted in response to Notice No. 870, DISCUS recommends that the term “approved” meter be deleted. We believe it is important to still require that distilled spirits plants use measurement devices that are accurate, and although we propose deleting the word “approved” as recommended by DISCUS, we are proposing to change the regulation to allow for the use of an “accurate mass flow meter” in the proposed regulation at § 19.383. As discussed earlier in this notice, TTB proposes to allow for the use of “accurate mass flow meters,” without prior approval by TTB, if they meet certain criteria for accuracy.

Denatured spirits inventory. DISCUS recommends the amendment of the regulation at § 19.464 by changing the requirement to conduct an inventory from quarterly to annually. We did not adopt this recommendation in the proposed rule. The shorter time period between inventories makes it easier for both TTB and a proprietor to reconcile discrepancies and thereby protect the revenue.

Denaturation and article manufacture. In Notice No. 870, ATF advised that under § 19.454 gauging is required before and after denaturation. This prevents a distilled spirits plant from conducting denaturation and article manufacture in a single, unified process because the proprietor must gauge the spirits after denaturation and before making an article. In Notice No. 870, ATF proposed to amend the current regulation at § 19.454 to provide proprietors with greater flexibility to conduct denaturation and article manufacture in a single, unified process. ATF also proposed to provide a prescribed method of computation to accurately determine the quantity of denatured spirits used and produced.

Equistar Chemicals wrote in support of the proposal to allow for a unified process for denaturation and article manufacture. However, the company suggested that the regulations continue to allow for measurements by volume, meter, or other approved methods, and it suggested alternative language for § 19.454. Equistar's suggestion is included in these proposed regulations with some modification; i.e., we will not prescribe a weight calculation as the sole means for determining the quantity of specially denatured alcohol produced when denaturation and article manufacture occur in a single process. These changes appear in the proposed regulations at § 19.383.

Filling containers from tanks. In its comments on Notice No. 870, Equistar recommends amendment of the current regulation at § 19.462, Filling of containers from tanks. This regulation requires companies to record a gauge measurement both before and after withdrawing spirits from a tank. Equistar suggests that the regulations eliminate the requirement for the first gauge measurement and simply allow the second, after-withdrawal gauge measurement to serve as the starting measurement for the second withdrawal. This proposal is reasonable because a single gauge may serve both purposes, and we are proposing to amend the regulations at § 19.389 to reflect that change.

Subpart P—Transfers, Receipts, and Withdrawals

Proposed subpart P will cover several issues, including transfers in bond, receipts from customs custody, withdrawals without payment of tax, withdrawal free of tax, samples of spirits, and securing of conveyances. Sections of the current regulations related to withdrawal on determination and payment of tax have been moved to proposed Subpart I, Distilled Spirits Taxes. Below is a discussion of several changes to the regulations that we are proposing in the new subpart P.

General. We propose to add a new “General” section to the regulations that will identify the subject matter covered in the new subpart P. This new section appears in the proposed regulations at § 19.401.

Consignee premises. The current regulation at § 19.510, Consignee premises, contains several references to Form 703. The Form 703 was formerly used for the transfer in bond of wine, but it is now obsolete. References to the Start Printed Page 26215Form 703 have been removed from the proposed regulations at § 19.407, Consignee premises.

Receipt of Transfers in Bond by Consignees. The current regulation at § 19.510 requires that when spirits, denatured spirits, or wines are received by transfer in bond, the consignee is required, among other things, to examine the conveyance, check the seals for tampering, gauge, and record the receipt of the shipment. TTB has always interpreted this section to mean that when the shipment arrives at the consignee premises or the carrier has completed its transportation of the shipment, such as when a rail carrier delivers a tank car to a rail siding on or adjacent to the plant premises, the transfer in bond is complete and the consignee must gauge and record the shipment as received.

However, during the course of some recent on-site field audits, TTB has discovered a number of instances in which distilled spirits plant proprietors failed to timely gauge and record the receipt of bulk distilled spirits transferred in bond. Some proprietors have chosen to apply an alternate interpretation to the term, “received,” as used in the regulation, and they believe that they can delay required gauges and recordkeeping until after testing and formally accepting title to the spirits, which may take several weeks or longer after the date of actual delivery. In other words, some industry members have decided that the physical arrival of a shipment does not constitute receipt of the shipment, and they believe that they may decide when the shipment is “received.”

TTB believes that the meaning of the current regulation is clear and that the term “received” means that the shipment has physically arrived at its destination. In fact, the language of the current regulation also uses the phrase “upon arrival at his premises”.

However, in order to further clarify the meaning of the regulation, the proposed regulation at § 19.407, which governs actions to be taken by a consignee upon receipt of a shipment, has been amended to emphasize the “arrival” of a shipment at the consignee's plant or at a location which represents the final destination for the carrier. Thus, it should be clear that shipments that physically arrive at the consignee's plant or rail sidings at or near the consignee's plant have been received and must be recorded as such. As proposed, the amended regulation at § 19.407 will use the following phrase to describe the time when the shipment is received, “[U]pon arrival of an in bond shipment at the consignee's premises or at the destination point specified in the carrier's transportation documents, the consignee must * * *.” TTB believes that this amended language will clarify the current meaning of the regulation.

Determination of tare. The current regulation at § 19.503 discusses determination of tare when packages are to be individually gauged for withdrawal from bonded premises. In the proposed regulations, this section has been moved to Subpart K, Gauging, and now appears at § 19.288.

Disposition of excess spirits. In the current regulation at § 19.539, there are instructions for Government agencies regarding the disposition of excess spirits that were withdrawn from a distilled spirits plant free of tax. This section has been deleted from the proposed regulations because these instructions are properly covered in 27 CFR 20.246 and 22.176.

Securing of Conveyances. The current regulation at § 19.96 requires that securing devices used on conveyances in which spirits are transferred in bond, or withdrawn free of tax or withdrawn without payment of tax, require approval by the appropriate TTB officer before use. However, securing devices that meet the criteria described in § 19.96 do not require prior approval by TTB. Currently, the securing devices that do not require prior approval by TTB include cap seals and ball-strap-type (railroad) seals. The proposed regulation at § 19.441 has been amended to also allow for the use of locking security cables without prior approval by TTB.

Subpart Q—Return of Spirits to Bonded Premises and Voluntary Destruction

Under the current regulations in part 19, issues relating to the return of spirits to bonded premises and voluntary destruction are covered under subpart U. In these proposed regulations, these subjects will be covered in a new subpart Q. Below is a discussion of several changes to the regulations that we are proposing in the new subpart Q.

Imported spirits. The Taxpayer Relief Act of 1997 amended the IRC at 26 U.S.C. 5008(c)(1) by allowing a credit or refund of tax to be granted for imported bottled spirits that are returned to a distilled spirits plant. The proposed regulation at § 19.452 provides that a proprietor may return tax paid or tax determined spirits to bonded premises that were tax paid upon importation through U.S. Customs and Border Protection. As discussed earlier in this notice, conforming changes were also made in Subpart J, Claims.

Returns to bond. The new subpart Q has been substantially revised to make clearer the types of spirits, denatured spirits, and articles that may be returned to bonded premises. In addition, we propose to replace several sections of regulations with a chart for easier reference and use. We have incorporated §§ 19.683 through 19.686 of the current regulations into the proposed chart at § 19.454.

Voluntary destructions. In its suggested changes to part 19, DISCUS recommends that the section of regulations dealing with voluntary destructions at § 19.691 include a subparagraph that references the filing of claims. We did not include this recommendation in the proposed regulations because the filing of claims is already covered in the new subpart J of the proposed regulations.

Subpart R—Losses and Shortages

Under the current regulations in part 19, losses and shortages are covered in subpart Q. In the proposed regulations, these subjects will be covered in a new subpart R. In its comments on part 19, DISCUS recommends several changes affecting the regulations governing losses and shortages. Below is a summary of the suggested DISCUS changes and TTB's evaluation of those recommendations.

Losses in general. DISCUS recommends the elimination § 19.561 of the current regulations because it is redundant with the statute. TTB agrees that this section of the regulations repeats provisions covered in the IRC. However, the regulations in part 19 are intended to provide users with a comprehensive and complete guide to the requirements for operating a distilled spirits plant. TTB does not consider it appropriate to require readers of these regulations to reference both the IRC and the regulations when seeking guidance on an issue. Therefore, the information provided in the current regulations at § 19.561 will appear in the proposed regulations at § 19.461.

Determination of losses in bond, loss of spirits from packages. DISCUS recommends that the current regulations at §§ 19.562 and 19.563 be moved to the claims subpart within part 19. We disagree with this suggestion. These sections deal with the determination of losses in bond and are appropriately located in the subpart for losses and shortages.

Loss of spirits from packages. DISCUS recommends amendment of the current regulation at § 19.563 by replacing a reference to the regulation at § 19.561(b) with a reference to the IRC at 26 U.S.C. 5008(a)(1)(A). Apparently, they recommended this change because they had earlier proposed to eliminate Start Printed Page 26216§ 19.561 from the regulations altogether. Since we did not eliminate § 19.561, (now proposed § 19.461), there is no need to replace the reference to it with a reference to the statute.

Losses after tax determination. DISCUS recommends elimination of § 19.564, Losses after tax determination, because it is redundant with the statute and other rules, and it recommends the transfer of part of the text to § 19.43, Claims relating to spirits lost after tax determination. In the proposed regulations, we have retained this section at § 19.464; however, we have substantially shortened it, and it now refers to subpart J where claims for losses after tax determination are covered. TTB proposes to continue this provision because it is inappropriate to require readers of these regulations to reference both the IRC and the regulations when seeking guidance on an issue.

Subpart S—Containers and Marks

Proposed subpart S covers requirements for containers and marks that are covered in the current regulations at subpart R. In the new subpart S, much of the information regarding containers and marks has been rearranged and put into a more logical order. In addition, we propose several amendments to the regulations governing containers and marks.

Industrial versus nonindustrial. The current regulations in subpart R list requirements that apply to spirits for “industrial” use and separate requirements that apply to spirits for “nonindustrial” use. However, the terms “industrial” use and “nonindustrial” use are not explained within subpart R. The proposed regulations in subpart S define those terms in a new section which appears at § 19.472.

Tanks, pipelines. In its comments on part 19, DISCUS proposes that the current regulations at § 19.586, Tanks, and § 19.587, Pipelines, be deleted because they are redundant with other sections of the regulations. We agree that they are redundant, and propose such deletion in the proposed regulations.

Filling containers. In the current regulation at § 19.582, there is a limitation on filling containers during processing operations. This regulation limits filling to containers of not more than 10 gallons. We deleted this limitation in the proposed regulation at § 19.474 because we foresee instances where a processor may have a need to fill containers in excess of 10 gallons. In addition, the current regulation at § 19.583, imposes a 10-gallon limitation for the filling of containers with Specially Denatured Alcohol (SDA). We are not aware of any reason for this limitation, and in the proposed regulation at § 19.475 we propose deleting the size reference because SDA may be filled into containers with a larger capacity.

Marks on packages of tax-paid industrial spirits. In Notice No. 870, ATF proposed to amend the regulation in § 19.605 by requiring that proof, tare, and proof gallons be marked on packages of spirits withdrawn on determination of tax. In its response to Notice No. 870, DISCUS opposes this proposal because it would be burdensome on proprietors that ship to manufacturers of nonbeverage products. DISCUS also states that the information required in ATF's proposed § 19.605 is already required under § 19.749, Bottling and packaging record, and § 19.769, Package gauge record. After consideration of the DISCUS comments, we did not include this proposal from Notice No. 870 in this new proposed rule.

Subpart T—Liquor Bottle, Label, and Closure Requirements

Under the current regulations in part 19, issues relating to liquor bottles and label requirements are found in subpart S and issues relating to closure requirements are found in subpart T. In the proposed regulations, these subjects will be covered in the new subpart T. Below is a summary of the changes that we propose to make in the new regulations.

Scope. The current regulation at § 19.631, Scope, states that the regulations in §§ 19.632 through 19.639 only apply to bottles with a capacity of 200 ml or more unless it is specifically stated that the section applies to bottles of less than 200 ml. In our revision of the subpart, we deleted several sections of regulations, and the only sections that remain apply to all bottle sizes. Therefore, the “scope” section of the proposed regulations at § 19.631 is no longer needed and has been deleted.

Bottles authorized. The current regulation at § 19.632 states that liquor bottles, including bottles of less than 200 ml, must conform to the standards of fill in 27 CFR part 5. This section was rewritten and deletes the reference to 200 ml because there are no special rules that apply to bottles of less than 200 ml. As proposed, the new regulation at § 19.511 simply states that all liquor bottles for domestic purposes must conform to the standards of fill at 27 CFR part 5.

Distinctive liquor bottles. We have rewritten the current regulation at § 19.633 to remove the reference to bottle sizes less than 200 ml. The requirements of this section apply to all bottle sizes and now appears in the proposed regulations at § 19.513.

Receipt and storage of liquor bottles. The current regulation at § 19.634 provides rules for the receipt and storage of liquor bottles. We could find no consumer or revenue protection reason to retain this section, and we deleted it from the proposed regulations.

Bottles to be used for display purposes. The current regulation at § 19.635 provides recordkeeping rules for those instances in which liquor bottles are provided for display purposes. We could find no reason to treat these bottles differently than others so we are proposing to delete this provision from the proposed subpart. Records of receipt and use of all liquor bottles are covered in the proposed regulation at § 19.603.

Bottles for testing purposes. We propose to delete the current regulation at § 19.636. As stated above, we could find no reason to retain this as a separate section of regulations. Records of receipt and use of liquor bottles are covered in the proposed regulation at § 19.603.

Bottles not constituting approved containers. We rewrote the current regulation at § 19.637 to remove the reference to bottle sizes less than 200 ml because there are no special rules that apply to bottles of less than 200 ml. This section applies to all bottle sizes and now appears at proposed § 19.512.

Disposition of stocks of liquor bottles. We deleted the current regulation at § 19.638 in the proposed regulations. We could find no consumer or revenue protection reason to retain this as a separate section. Records of receipt, use, and disposition of liquor bottles are covered in the proposed regulation § 19.603.

Use and resale of liquor bottles. We deleted the current regulation at § 19.639 in the proposed regulations. We could find no consumer or revenue protection reason to retain this as a separate section. Records of receipt, use, and disposition of liquor bottles are covered in the proposed regulation § 19.603.

Statements required on labels under an exemption from label approval. The current regulation at § 19.642 contains a general requirement whereby labels that are exempt from label approval must contain certain items of information. The regulations at §§ 19.643 through 19.650 discuss those specific items of information. Further, most of the text in Start Printed Page 26217§§ 19.643 through 19.650 mirrors text found in 27 CFR part 5.

In our proposed regulation at § 19.517, we have merged most of the information in the current regulations at §§ 19.642 through 19.650 and created a section which lists the specific information that must appear on a label exempt from label approval. Further, we propose to no longer publish in one part of the regulations identical provisions from other parts of the regulations. Thus, we propose stating that the mandatory information under § 19.517 must conform to specific, cited sections of 27 CFR part 5 and § 19.518 of part 19 without duplicating the actual text of those regulations in § 19.517.

Closures. The current regulations at §§ 19.661 and 19.662 contain the closure requirements that apply to each bottle or container of spirits having a capacity of one gallon or less. Under the current regulations, distilled spirits containers must have a closure that leaves a portion of the closure on the container when opened. In addition, the closure must be constructed in such a manner that it must be broken to gain access to the contents. These regulations implement the IRC at 26 U.S.C. 5301(d). DISCUS proposes that the closure requirement at § 19.662 be amended to allow for closures that are removed completely if the closure shows when it has been subject to tampering.

In our proposed regulation at § 19.523, we require that the container have a closure that must be broken to gain access to the contents. However, we have deleted the requirement that a portion of the closure remain on the container when opened. This particular feature of the current regulation is not a requirement of the IRC at 26 U.S.C. 5301(d). Further, we have received several requests for an alternate method or procedure from this particular requirement, and we see no continued need for this feature on the closure.

Labels for export and Puerto Rico. In the current regulations at §§ 19.395 and 19.396, we discuss the label requirements that apply to spirits for export and spirits for shipment to Puerto Rico. These requirements have been incorporated into our proposed regulations at §§ 19.519 and 19.520.

Subpart U—Reserved

We propose to reserve subpart U for possible future use.

Subpart V—Records and Reports

The current regulations in part 19 require that the proprietor of a distilled spirits plant maintain a comprehensive system of records relating to operations at the plant. The primary aim of this records system is to account for all taxable spirits and products that are produced, received, stored, processed, and removed from the plant. Further, the regulations require that the proprietor account for taxable products by maintaining a system of records arranged into separate accounts within each plant. Depending on the scope of operations conducted at the plant, this records system may include a production account, a storage account, a processing account, and a denaturation account. In addition, there are a number of daily records and summary records prescribed for activities occurring within each account. These recordkeeping requirements are based on the IRC at 26 U.S.C. 5146, 5201, 5207, 5211, 5291, 5555, 5603, 6001, 6011, and 6061.

Under the current regulations, recordkeeping and report requirements are covered in subpart W. In the proposed regulations, these subjects will be covered in a new subpart V.

We are proposing several amendments to the regulations covering recordkeeping and reporting requirements for distilled spirits plants. Some of the proposed amendments are based on recommendations made by DISCUS. Other proposed amendments are the result of TTB's internal review of the current recordkeeping and report requirements for distilled spirits plants.

DISCUS Recommendations. The following is a summary of the recordkeeping changes proposed in the petition submitted by DISCUS.

  • Commercial records. DISCUS recommends an increased reliance on the commercial records that are maintained by distilled spirits plants as opposed to the detailed government records that are currently required in subpart W. In its petition for the revision of part 19, DISCUS asserts:

The Bureau's responsibility to protect the revenue can be fulfilled by reliance on commercial records maintained by DSPs in the ordinary course of business or summaries of such records, typically computerized, which show “what goes in” and “what goes out” of the plant.

Further, in its markup of part 19, DISCUS proposes the deletion of a substantial number of the records currently required by subpart W.

  • Elimination of separate accounts. Closely related to its proposal to increase the use of commercial records, DISCUS also proposes the elimination of the three separate accounts currently required in subpart W. DISCUS asserts:

Records of activities not impacting upon “what goes in” and “what goes out” are unnecessary and thus would not be required. These include, inter alia, records of gauges, measurements of product, and movements at each interim step of the plant's operations.

In support of this proposal, DISCUS submitted numerous proposed amendments to the recordkeeping requirements in subpart W involving the elimination of many of the current recordkeeping requirements and replacing those requirements with a recordkeeping system based on a single DSP account for all spirits.

  • Daily versus monthly records. Under the current recordkeeping regulations, a distilled spirits plant proprietor is required to record each activity or transaction as it occurs, summarize those activities on a daily basis, and then report those activities in a monthly summary report. DISCUS proposes that DSPs no longer be required to record information on a daily basis. Instead, they propose that information be recorded on a monthly basis. In its petition, DISCUS states:

Other unnecessary and burdensome recordkeeping regulations also would be modified. For example, ordinary business records and summaries used for Part 19 compliance would not be required to show information on a daily basis, but instead generally on a monthly basis.

DISCUS asserts that these changes would not have an adverse effect on TTB's ability to audit operations at DSPs.

  • Format, storage, and reproduction. In regard to the format, storage, and reproduction of records, DISCUS states:

Under this modernized regulatory scheme, proprietors no longer would be required to maintain information in any prescribed format, would be able to store records at any of the proprietor's facilities, and would not need prior approval from the Bureau to reproduce records.

DISCUS recommends that the regulations governing format, storage, and reproduction of records at 27 CFR 19.721 and 19.723 be amended.

TTB's Proposed Changes to the Regulations. In response to the recommendations made by DISCUS and based on TTB's analysis of the current recordkeeping requirements, we propose several amendments to the regulations in the new proposed subpart V.

  • Restructuring and plain language changes. One of the first changes that we propose is to restructure and reorder much of the information in subpart V. For example, recordkeeping information that was contained within some of the longer sections within the subpart has been divided-up into shorter, individual sections within the subpart. We believe this change will make for easier reader Start Printed Page 26218access. We have also incorporated plain language principles into our rewriting of the subpart to make the revised regulations easier to read and understand.
  • Commercial records. As a general principle, TTB agrees with increased reliance on the commercial records maintained by a DSP, as opposed to records that are specifically created to satisfy government recordkeeping requirements. We also agree that the proprietor's commercial records should contain most of the information necessary to track the receipt and disposition of spirits as well as certain key transactions within the plant. With this principle in mind, we state in the proposed regulation at § 19.572 that required records may consist of documents created in the ordinary course of business rather than records created to expressly to meet the requirements of this part, if those documents:

(1) Contain all of the details that this part requires;

(2) Are consistent with the general standards of clarity and accuracy; and

(3) Can be readily understood by TTB personnel.

Separate accounts. The current regulations require that a proprietor maintain a system of records arranged into separate accounts. This may include a production account, a storage account, a processing account, and a denaturation account, as applicable. DISCUS recommends that the recordkeeping regulations be substantially abbreviated and provide for a single account at the DSP.

In our review of the IRC requirements regarding the “records” that must be maintained by a DSP under 26 U.S.C. 5207, we find that a DSP must keep records of “production activities,” “storage activities,” “denaturation activities,” and “processing activities.” Also, 26 U.S.C. 5207 provides a list of required records that must be maintained for each of these activities. Thus, we modeled the current DSP recordkeeping regulations after 26 U.S.C. 5207, and we propose to continue to require that records be maintained with a separate account for each activity.

Further, the requirement to maintain separate accounts within a DSP is specifically addressed in the legislative history of the Trade Agreements Act of 1979 (Pub. L. 96-39), which implemented the current system for operating distilled spirits plants. The legislative history of the Trade Agreements Act of 1979 states in part:

The new all-in-bond system will substantially simplify the qualification and use of distilled spirits plant premises, by eliminating the requirement that separate facilities, for the various distilling operations be established and maintained within a plant. Since the tax under the all-in-bond system will be determined at the conclusion of the distilled spirits operations, there is no longer any need for these physical delineation and separation requirements. Under the all-in-bond system, these separate activities will be accounted for only by recordkeeping accounts such as for production, storage, processing and finished goods. Tanks, vats, rooms or buildings may be used for multiple purposes, with the type and identification of the spirits being maintained by the appropriate records.

Thus, the legislative history of the Trade Agreements Act of 1979 clearly shows that while Congress established the all-in-bond system with its efficiencies, Congress intended to maintain a system of separate recordkeeping accounts for the different operations within a distilled spirits plants.

Based on the language of the IRC and the legislative history of the Trade Agreements Act of 1979, we propose to continue the requirement to establish separate accounts within the DSP. However, we also propose to eliminate any current recordkeeping requirements and items of information that are not necessary for the protection of the revenue or that do not aid in the tracking of spirits for consumer protection purposes.

  • Daily versus monthly records. As discussed earlier, DISCUS recommends that proprietors no longer be required to show information in their records on a daily basis. Instead, DISCUS proposes that information be shown on a monthly basis. After careful consideration, we decided against making this proposal. TTB would be unable to audit activities at a plant if only monthly summaries of activities are available. To continue to audit activities at the plants, TTB needs access to the daily transaction records. Thus, daily records must continue to be maintained.
  • Format, storage, and reproduction. The proposed regulations do not require that records be maintained in any particular format or media. Required records may be kept on paper, on microfilm or microfiche, or on a computer or other electronic media. The only requirement is that records must be readily retrievable in hard-copy format for review by TTB officers as necessary. Further, we have eliminated the requirement at § 19.725 to obtain TTB approval to reproduce required records.
  • Computer-generated reports and forms. Over the past several years, TTB has approved several alternate methods or procedures that allow companies to submit computer-generated paper reports and forms. DISCUS recommends that this option be extended to all DSPs. TTB has no objection to receiving computer-generated reports and transaction forms. Accordingly, the proposed regulation at § 19.634 states that TTB will accept both computer-generated reports of operations and transaction forms that are made using a computer printer on plain white paper and that match the TTB report or form. Further, use of these reports and forms will not have to be pre-approved by TTB if they conform to the following standards:

(1) The computer-generated report or form must approximate the physical layout of the corresponding TTB report or form, although the typeface may vary;

(2) The text on the computer-generated report or form and each line entry must exactly match the official TTB report or form; and

(3) Each penalty of perjury statement specified for the TTB report or form must be produced in its entirety.

  • Electronic submission of forms. Closely related to the subject of computer-generated reports is the matter of electronic submission of forms and electronic signatures. We addressed this issue in a separate rulemaking action. On October 10, 2003, TTB issued Treasury decision T.D. TTB-5 (68 FR 58600, October 10, 2003) in which we allow for the submission of certain forms to TTB electronically through a TTB-approved electronic document receiving system. We believe that by providing this option to submit certain forms electronically, we can substantially reduce the costs associated with submitting and maintaining paper documents.
  • Location of records. Formerly, the IRC at 26 U.S.C. 5207 required that records be kept on the premises of the distilled spirits plant where the operations covered by the records are conducted. This section of law was amended in 1997 by Public Law 105-34 and IRC section 5207 no longer requires that records be maintained at the plant. Accordingly, the proposed regulation at § 19.573 allows required records to be maintained at either the distilled spirits plant where operations or transactions occur or a central recordkeeping location. However, when records are to be kept at a central recordkeeping location, the proposed regulations at § 19.574 will require that they be made available at the plant premises during inspections and audits.
  • Transfer record for shipments from customs custody. Notice No. 870 advised that the transfer record for spirits being received from customs Start Printed Page 26219custody is mentioned in § 19.770 in a way that implies that the transfer record would be prepared under § 19.770. However, 27 CFR 27.138 prescribes the information for the transfer record covering such transfers, and that information is different in several ways from the information required for domestic transfers by § 19.770. Notice No. 870 proposed to amend § 19.770 to clarify that the record required for transfer of spirits from customs custody must be prepared in accordance with § 27.138.

DISCUS does not comment on this proposal, and we incorporated this proposed change into the new, proposed regulation at § 19.621(c).

  • Miscellaneous changes. In its part 19 mark-up, DISCUS proposes the elimination of § 19.775, Record of securing devices, and § 19.776, Record of scale tests. We agree with this recommendation, and these sections have been deleted from the proposed regulations. In addition, we propose to eliminate § 19.726, Authorized abbreviations to identify spirits. We see no need to prescribe the abbreviations used by proprietors on forms or records.
  • Reports. Currently, distilled spirits plant proprietors submit monthly reports of operations. These reports include: Monthly Report of Production Operations, TTB F 5110.40; Monthly Report of Storage Operations, TTB F 5110.11; Monthly Report of Processing Operation, TTB F 5110.28; and Monthly Report of Processing (Denaturing) Operations, TTB F 5110.43. DISCUS recommends that the monthly reports be changed to quarterly reports and also suggested that three of the reports be merged into a single report.

We disagree with this recommendation. Our Office of Field Operations (FO) relies on monthly submission of detailed information for its pre-audit analysis and monitoring of plant operations. FO finds that having separate reports, rather than a merged report, is in the best interests of protecting the revenue because its staff is better able to assess specific operations within the distilled spirits plant and identify specific operations for particular attention during an audit. In addition, TTB recently simplified the submission of monthly report data with the implementation of TTB Pay.gov, and this simplification should address some of the concerns raised by DISCUS.

Subpart W—Production of Vinegar by the Vaporizing Process

Under the current regulations, production of vinegar by the vaporizing process is covered at subpart X. In these proposed regulations, we cover the production of vinegar under proposed subpart W. DISCUS does not recommend any changes to the regulations in this subpart, and we did not make any substantive changes to these regulations.

Subpart X—Distilled Spirits for Fuel Use

Under the current regulations, distilled spirits for fuel use is covered in subpart Y. In these proposed regulations, this subject will be covered under a new subpart X. Proposed subpart X will cover the requirements for establishing and operating a distilled spirits plant that will produce, process, store, use, or distribute distilled spirits exclusively for fuel use.

DISCUS does not propose any changes to this subpart. However, TTB proposes to make several changes to the regulations in subpart X. Similar to the changes made in other subparts, we have rearranged the information in subpart X into a more logical order. Also, we combined some sections to provide more clarity, added new sections, and renumbered the regulations within this subpart.

Definitions. We amended the definitions that appear in the current regulations at § 19.911, Meaning of terms, by deleting or replacing terms that no longer apply. We also deleted several terms that are defined in the proposed regulations at § 19.1, Definitions. The definitions for this subpart appear in the proposed regulations at § 19.662.

Letterhead applications. In the proposed regulations, we now include an allowance for letterhead applications and letterhead notices for changes affecting permits.

Bonds. In the proposed regulations at §§ 19.699 and 19.700, we provide information that explains bonds and sureties in more detail. We also provide an improved explanation of how the amount of the bond must be computed.

Bonds for some small plants. The IRC, at 26 U.S.C. 5181(c)(3), provides that no bond is required for an “eligible distilled spirits plant” and that such plants may nonetheless receive shipments of spirits “in bond” under 26 U.S.C. 5212. An “eligible distilled spirits plant” is defined in 26 U.S.C. 5181(c)(4) as “a plant which is used to produce distilled spirits exclusively for fuel use and the production from which does not exceed 10,000 proof gallons per year.” This definition requires a plant to produce distilled spirits in order to be an “eligible distilled spirits plant.”

Although the Bureau formerly interpreted 26 U.S.C. 5181(a)(1) to require that all alcohol fuel plants must produce distilled spirits, this interpretation has been amended, and the Bureau now holds that a person may establish an alcohol fuel plant solely for the receipt and processing of distilled spirits for fuel use. Nevertheless, such a plant does not meet the definition of “eligible distilled spirits plant” quoted above. Therefore, a plant that would only receive and process distilled spirits and has no production capability must have a bond, regardless of size in order to be eligible to receive spirits “in bond” under 26 U.S.C. 5212. The proposed regulations at §§ 19.673, 19.699, and 19.700 will now provide for the bonding of small alcohol fuel plants that do not produce distilled spirits for fuel use.

Importing spirits. TTB allows persons qualified as an alcohol fuel producer under the 26 U.S.C. 5181 to receive imported alcohol from customs custody. However, such importations are not covered in the current regulations in subpart Y. In the proposed regulations, we added a new section at § 19.742 that covers the transfer of spirits from customs custody to an alcohol fuel plant. This new section incorporates the procedures for importation of spirits that were discussed in Notice No. 870 and Industry Circular 80-6, “Distilled Spirits for Fuel Use”.

Application for transfer of spirits in bond. 26 U.S.C. 5212 provides for the transfer in bond of bulk distilled spirits between bonded premises without payment of tax. In addition, 26 U.S.C. 5005(c)(1) provides that the consignee proprietor of a distilled spirits plant is liable for the tax on all distilled spirits that are in transit to the consignee's premises from the time of removal from the consignor's premises pursuant to an application made by the consignee of the shipment.

Based upon the provision within IRC section 5005(c)(1), which assigns liability for the shipment to the consignee based upon an application made by the consignee, distilled spirits plant proprietors qualified under 26 U.S.C 5171 are required to file an Application for Transfer of Spirits and/or Denatured Spirits in Bond on TTB F 5110.16 and receive authorization from TTB prior to the transfer of spirits in bond. This requirement appears in the current regulations at § 19.506.

The application by the consignee proprietor on TTB F 5100.16 is filed in triplicate with TTB's Director, National Revenue Center. If the application is approved, the Director of our National Revenue Center will complete Part II on all copies of the form, retain one copy of the form, and return the remaining Start Printed Page 26220copies to the applicant. The applicant will deliver one of the approved copies to the consignor and retain one copy for his files. The approved application remains in effect until the bond terminates or where there is less than a maximum bond, the approved application will terminate when the penal sum of the bond is changed.

TTB's current regulations governing alcohol fuel plants do not require that the consignee proprietor submit an application to receive spirits in bond on form TTB F 5100.16, Application for Transfer of Spirits and/or Denatured Spirits in Bond. This appears to be an oversight in the current regulations and represents a jeopardy to the revenue because the law at 26 U.S.C. 5005(c)(1) assigns tax liability for the shipment to the consignee only when the spirits are shipped “pursuant to an application made by him.”

Therefore, we propose to amend the regulations governing transfers in bond involving alcohol fuel plants and require that the proprietor of an alcohol fuel plant who wishes to receive spirits by transfer in bond must file an application with TTB on form TTB F 5100.16 and receive approval from TTB prior to the transfer. This requirement appears in the proposed regulations at §§ 19.403, 19.405, 19.406, 19.733, 19.734, and 19.735.

Authorized materials. The listing of materials authorized for rendering spirits unfit for beverage use is found in the current regulations at § 19.1005. This listing has been updated to include several additional denaturants and is located in the proposed regulations at § 19.746, Authorized materials.

Subpart Y—Paperwork Reduction Act

The Office of Management and Budget (OMB) assigns control numbers to our information collection requirements. Subpart Y is a listing of those sections of the proposed 27 CFR part 19 regulations that impose an information collection requirement along with the assigned OMB control number.

II. Derivation Table for Proposed Part 19

The following table shows the derivation of the new sections of regulations. It is cross-referenced between the new section numbers in the proposed 27 CFR part 19 regulations contained in this notice and the old section numbers in the current part 19 regulations.

Requirements of proposed section:Are derived from current section:
19.019.1
Subpart A
19.119.11
19.219.2
19.319.3
19.419.57
19.519.58
Subpart B
19.1119.81
19.1219.86
19.1319.75
19.1419.4
19.1519.61
19.1619.724
19.1719.82
19.1819.83
19.1919.79
19.2019.77
19.2619.62
19.2719.62
19.2819.73
19.2919.70, 19.74
19.3119.63
19.3219.65
19.3319.66
19.3419.71
19.3519.71
19.3619.67
19.3719.67
19.3819.78
19.4519.100
Subpart C
19.51New
19.5219.131
19.5319.132
19.5419.133
19.5519.68, 19.72
19.5619.134
19.5819.97
19.5919.98
19.6019.99
Subpart D
19.7119.151
19.7219.151
19.7319.152
19.7419.168
19.7519.166
19.7619.153
19.7719.170, 19.324
19.7819.156
19.7919.169
19.8019.154
19.8119.155
19.9119.157
19.9219.158
19.9319.167
19.9419.165
19.9519.159
19.9619.161
19.9719.162
19.9819.160
19.9919.163
Subpart E
19.111New
19.11219.180
19.11319.182
19.11419.184
19.11519.185
19.11619.186, 19.187
19.11719.188
19.11819.189
19.11919.190
19.12019.191
19.12119.192
19.12219.193
19.12319.153(b)
19.12619.180
19.12719.181
19.12819.182
19.12919.183
19.13019.184
19.13119.185
19.13219.186, 19.187
19.13319.188
19.13419.189
19.13519.191
19.14119.201
19.14219.202
19.14319.203 through 19.206
19.14419.207
19.14719.211
Subpart F
19.15119.231, 19.232
19.15219.231
19.15319.233
19.15419.234
19.15519.235
19.15619.236
19.15719.237
19.16119.231, 19.232
19.16219.241
19.16319.242
19.16419.243
19.16519.244
19.16619.245
19.16719.246
19.16819.247, 19.248
19.16919.248
19.17019.249
19.17119.250
19.17219.251
19.17319.252
Subpart G
19.181New
19.18219.273
19.18319.273
19.18419.273
19.18519.273
19.18619.276
19.18719.274
19.18819.277
19.18919.278
19.19019.279
19.19119.280
19.19219.281
19.19319.282
Subpart H
19.20119.49(a)
19.20219.50
19.20319.50
19.20419.49
19.20519.49(c) and (d)
Start Printed Page 26221
19.20619.49(b)(2)
19.20719.51
19.20819.51
19.20919.51
19.21019.52
19.21119.53
19.21219.54
19.21419.54
Subpart I
19.221New
19.22219.21 through 19.23
19.22319.24
19.22519.25, 19.515, 19.526
19.22619.517
19.22719.515
19.229New
19.23019.515(b), 19.522(b)
19.23119.516
19.23319.522(c), 19.523(b)
19.23419.522(a), 19.523(a)
19.23519.522, 19.523
19.23619.523
19.23719.523
19.23819.525
19.23919.519
19.24019.524
19.24219.520
19.24319.521
19.245New
19.24619.34
19.24719.35
19.24819.36
19.24919.37
19.25019.38
19.25319.31
19.25419.32
19.25619.26
19.25719.518
19.25819.486
Subpart J
19.261New
19.26219.44
19.26319.41
19.26419.42
19.26519.43
19.26619.45
19.26719.46
19.26819.76
19.26919.487
Subpart K
19.281New
19.28219.84
19.28319.92
19.28419.91, 19.92(a), 19.93
19.28519.92(a)
19.28619.91(a)
19.28719.91(b)
19.28819.503
19.28919.319
Subpart L
19.291New
19.29219.311
19.29319.312
19.29419.314
19.29519.315
19.29619.312
19.29719.313
19.30119.316
19.30219.317
19.30319.318
19.30419.319
19.30519.320
19.30619.321
19.30719.322
19.30819.326
19.30919.327
19.31019.328
19.31219.329
19.31419.331
19.31519.332
19.31619.333
Subpart M
19.32119.341
19.32219.342
19.32419.344
19.32519.345
19.32619.346
19.32719.347
19.32819.348
19.32919.349
19.33119.343
19.33319.353
Subpart N
19.34119.371
19.34219.372
19.34319.373
19.34419.374
19.34619.376
19.34819.378
19.35119.381
19.35219.382
19.35319.383
19.35419.384, 19.400
19.35519.385
19.35619.386
19.35719.387
19.35819.388
19.35919.389
19.36019.390
19.36119.391
19.36219.392
19.36319.393
19.36419.394
19.36519.397
19.36619.398
19.37119.401
19.37219.402
Subpart O
19.38119.451
19.38219.452
19.38319.454
19.38419.451, 19.456
19.38519.455
19.38619.457
19.38719.453
19.38819.461
19.38919.462
19.39019.463
19.39119.459
19.39219.460
19.39319.458
19.39419.464
19.39519.471
19.39619.451
Subpart P
19.401New
19.40219.505
19.40319.506
19.40419.507
19.40519.508
19.40619.509
19.40719.510
19.40919.481
19.41019.482
19.41119.483
19.41419.484
19.41519.485
19.41819.531
19.41919.532
19.42019.533
19.42119.534
19.42419.536
19.42519.537
19.42619.538
19.42719.540
19.42819.541
19.43119.502
19.43419.701
19.43519.702
19.43619.703
19.43719.704
19.44119.96
Subpart Q
19.451New
19.45219.681, 19.682
19.453New
19.45419.683 through 19.686
19,45519.687
19.45719.688
19.45919.691
Subpart R
19.46119.561
19.46219.562
19.46319.563
19.46419.564
19.46519.565
Subpart S
19.471New and 19.581
19.472New
19.47319.581
19.47419.582
19.47519.583
19.47619.584
19.47719.585
19.47819.588
19.47919.589
19.48219.592
19.48319.595
19.48419.596(a) and (c)
19.48519.593
19.48619.599
19.48719.597
19.48819.596(b) and (c)
19.48919.607
19.49019.594
19.49119.601
19.49219.602
19.49319.604
Start Printed Page 26222
19.49419.605
19.49519.606
19.49619.608
19.49719.610
19.49819.611
19.49919.612
Subpart T
19.51119.632
19.51219.637
19.51319.633
19.51619.641
19.51719.642 through 19.650
19.51819.645
19.51919.395
19.52019.396
19.52319.661, 19.662
19.52519.663
Subpart U—Reserved
Subpart V
19.57119.721
19.57219.721, 19.731
19.57319.723(a)
19.57419.723(a) and (b)
19.57519.723(c)
19.57619.723(b)
19.57719.721(c), 19.723(c)
19.57819.721(d)
19.58019.731
19.58119.731(b), 19.732
19.58219.722
19.58419.736
19.58519.736
19.58619.736
19.59019.740
19.59119.741
19.59219.742
19.59319.743
19.59619.746
19.59719.747
19.59819.748
19.59919.749
19.60019.750
19.60119.751
19.60219.748(b)
19.60319.747
19.60419.747
19.60619.752
19.60719.753
19.61119.761
19.61219.762
19.61319.763
19.61419.764
19.61519.765
19.61619.766
19.61719.767
19.61819.768
19.61919.769
19.62019.770
19.62119.770
19.62219.773
19.62319.774
19.62419.778
19.62519.779
19.62619.780
19.627New
19.63119.791
19.63219.792
19.634New
Subpart W
19.64119.821
19.64319.822
19.64419.823
19.64519.824
19.64619.825
19.64719.826
19.64819.827
19.64919.828
19.65019.829
19.65119.830
Subpart X
19.661New and 19.901
19.66219.907
19.66319.901, 19.902
19.66519.903
19.66619.903
19.66719.904
19.66919.905
19.67019.906
19.672New
19.67319.910, 19.912, 19.913, 19.918
19.67419.913
19.67519.910, 19.914, 19.918
19.67619.910, 19.915 through 19.918
19.67719.916
19.67819.911
19.67919.910
19.68019.910
19.68319.919
19.68419.920
19.68519.921
19.68619.922
19.68719.923
19.68819.924
19.68919.925
19.69019.926
19.69219.930
19.69319.930
19.69519.945
19.69719.950
19.69919.955, 19.958, 19.959
19.70019.956, 19.957
19.70319.965
19.70419.966, 19.967
19.70619.970
19.70919.980
19.71019.981
19.71419.982
19.71519.982
19.71619.987
19.71719.982
19.71819.982, 19.984, 19.985, 19.986
19.71919.983
19.72019.988
19.72219.990
19.72319.990
19.72419.990
19.72619.1002
19.72719.995
19.72819.996
19.72919.997
19.73319.998
19.73419.999
19.73519.1000
19.73619.1001
19.73919.998
19.742New
19.74619.1005
19.74719.1006
19.74919.1007
19.75219.1008
Subpart Y
19.76119.1010

III. Public Participation

Comments Invited

TTB requests comments on the proposed amendments to our regulations discussed in this notice from anyone interested. Please submit your comments by the closing date shown above in this notice. Your comments must include this notice number (Notice No. 83) and your name and mailing address. Your comments must be legible and written in English in language acceptable for public disclosure. We do not acknowledge receipt of comments, and we consider all comments as originals.

Submitting Comments

You may submit comments on this notice by one of the following methods:

  • Federal e-Rulemaking Portal: You may send comments via the online comment form posted with this notice within Docket No. TTB-2008-0004 on “Regulations.gov,” the Federal e-rulemaking portal, at http://www.regulations.gov. A direct link to that docket is available under Notice No. 83 on the TTB Web site at http://www.ttb.gov/​spirits/​spirits_​rulemaking.shtml. Supplemental files may be attached to comments submitted via Regulations.gov. For complete instructions on how to use Regulations.gov, visit the site and click on “User Guide” under “How to Use this Site.”
  • Postal Mail: You may send written comments to the Director, Regulations and Rulings Division, Alcohol and Tobacco Tax and Trade Bureau, P.O. Box 14412, Washington, DC 20044-4412.
  • Hand Delivery/Courier in lieu of Mail: You may hand deliver comments to the Alcohol and Tobacco Tax and Trade Bureau, 1310 G Street, NW., Suite 200-E, Washington, DC 20005.

If you are commenting on behalf of an association, business, or other entity, your comment must include the entity's name as well as your name and position Start Printed Page 26223title. If you comment via http://www.regulations.gov, please enter the entity's name in the “Organization” blank of the comment form. If you comment via mail, please submit your entity's comment on letterhead.

You may also write to the Administrator before the comment closing date to ask for a public hearing. The Administrator reserves the right to determine whether to hold a public hearing.

Confidentiality

All submitted comments and attachments are part of the public record and subject to disclosure. Do not enclose any material in your comments that you consider to be confidential or inappropriate for public disclosure.

Public Disclosure

We will post, and you may view, copies of this notice and any comments we receive about this proposal within Docket No. TTB-2008-0004 on the Federal e-rulemaking portal, Regulations.gov, at http://www.regulations.gov. A direct link to that docket is available on the TTB Web site at http://www.ttb.gov/​spirits/​spirits_​rulemaking.shtml under Notice No. 83. You may also reach the relevant docket through the Regulations.gov search page at http://www.regulations.gov. For instructions on how to use Regulations.gov, visit the site and click on “User Guide” under “How to Use this Site.”

All posted comments will display the commenter's name, organization (if any), city, and State, and, in the case of mailed comments, all address information, including e-mail addresses. We may omit voluminous attachments or material that we consider unsuitable for posting.

You also may view copies of this notice and any comments we receive about this proposal by appointment at the TTB Information Resource Center, 1310 G Street, NW., Washington, DC 20220. You may also obtain copies at 20 cents per 8.5 x 11-inch page. Contact our information specialist at the above address or by telephone at 202-927-2400 to schedule an appointment or to request copies of comments or other materials.

IV. Regulatory Analyses and Notices

Paperwork Reduction Act

The collections of information contained in the regulations proposed by this notice have been previously reviewed and approved by the Office of Management and Budget in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507) under control numbers: 1513-0013, 1513-0014, 1513-0020, 1513-0030, 1513-0038, 1513-0039, 1513-0040, 1513-0041, 1513-0044, 1513-0045, 1513-0046, 1513-0047, 1513-0048, 1513-0049, 1513-0051, 1513-0052, 1513-0056, 1513-0080, 1513-0081, 1513-0083, 1513-0088, and 1513-0113. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a valid control number assigned by OMB.

Regulatory Flexibility Act

The Regulatory Flexibility Act, 5 U.S.C. 601 et seq., provides that whenever a Federal agency proposes regulations that may have a significant economic impact on a substantial number of small entities, the agency must prepare a regulatory flexibility analysis.

The provisions of the Regulatory Flexibility Act relating to an initial and final regulatory flexibility analysis (5 U.S.C. 603 and 604) are not applicable to notices of proposed rulemaking when a final rule would not have a significant economic impact on a substantial number of small entities. This proposed rulemaking proposes to restate existing regulations in plain language, to make certain variations currently granted to individual plants available to all plants, and to adopt certain suggestions made by industry associations to reduce the burdens of regulatory compliance. This proposed rulemaking proposes to reduce the burden on members of the distilled spirits industry, including small businesses. Accordingly, it is hereby certified that a final rule, if promulgated, will not have a significant economic impact on a substantial number of small entities and a regulatory flexibility analysis is not required.

We have submitted a copy of this proposed rule to the Chief Counsel for Advocacy of the Small Business Administration in accordance with 26 U.S.C. 7805(f).

Executive Order 12866

We have determined that this notice of proposed rulemaking is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required.

Executive Order 13132

Executive Order 13132, entitled “Federalism” (64 FR 43255, August 10, 1999), requires Federal agencies to ensure “meaningful and timely input by State and local officials in the development of regulatory policies that have federalism implications.” We certify that this proposed rule does not have federalism implications. This proposed rule will not have substantial direct effects on the States, on the relationship between the National Government and the States, or on the distribution of power and responsibilities among the various levels of Government.

V. Drafting Information

This notice was written by Daniel J. Hiland of the Regulations and Rulings Division, along with several other employees of the Alcohol and Tobacco Tax and Trade Bureau.

Start List of Subjects

List of Subjects in 27 CFR Part 19

End List of Subjects

VII. Authority and Issuance

For the reasons explained in the preamble, TTB proposes to amend chapter I of title 27 of the Code of Federal Regulations as follows:

Start Part

PART 19—DISTILLED SPIRITS PLANTS

Par. 1. Title 27 Code of Federal Regulations part 19 is revised to read as follows:

End Part Start Part

PART 19—DISTILLED SPIRITS PLANTS

19.0
Scope.
Subpart A—General Provisions
19.1
Definitions.
19.2
Territorial extent of these regulations.
19.3
Related regulations.
19.4
Recovery and reuse of denatured spirits in manufacturing processes.
19.5
Manufacturing products unfit for beverage use.
Subpart B—Administrative and Miscellaneous Provisions
19.11
Right of entry and examination.
19.12
Furnishing facilities and assistance.
19.13
Assignment of officers and supervision of operations.
19.14
Delegation of the Administrator's authorities to the appropriate TTB officer.
19.15
Forms prescribed. Start Printed Page 26224
19.16
Modified forms.
19.17
Detention of containers.
19.18
Samples for the United States.
19.19
Discontinuance of storage facilities.
19.20
Installation of meters, tanks, and other apparatus.
Alternate Methods or Procedures and Experimental Operations
19.26
Alternate methods or procedures.
19.27
Application for and use of alternative method or procedure.
19.28
Emergency alternate methods or procedures.
19.29
Exemptions for national defense and disasters.
19.31
Pilot operations.
19.32
Experimental distilled spirits plants.
19.33
Application to establish experimental plants.
19.34
Experimental or research operations by scientific institutions and colleges of learning.
19.35
Application by scientific institutions and colleges of learning for experimental or research operations.
19.36
Spirits produced in industrial processes.
19.37
Application for industrial processes waiver.
19.38
Approval of required documents.
“Penalty of Perjury” Declaration
19.45
Execution under penalty of perjury.
Subpart C—Restrictions on Production, Location, and Use of Plants
19.51
Home production of distilled spirits prohibited.
Rules for Location and Use of a DSP
19.52
Restrictions on location of plants.
19.53
Continuity of plant premises.
19.54
Use of distilled spirits plant premises.
19.55
Other businesses.
19.56
Bonded warehouses not on premises qualified for production of spirits.
Conveyance of Spirits or Wines on Plant Premises
19.58
Taxpaid spirits or wines on bonded premises.
19.59
Conveyance of untaxpaid spirits or wines within a distilled spirits plant.
19.60
Spirits in customs custody.
Subpart D—Registration of a Distilled Spirits Plant and Obtaining a Permit
19.71
Registration and permits in general.
Requirements for Registering a Plant
19.72
General requirements for registration.
19.73
Information required in application for registration.
19.74
Description of the plant.
19.75
Major equipment.
19.76
Statement of plant security.
19.77
Statement of production procedure.
19.78
Power of attorney.
19.79
Registry of stills.
19.80
Approved notice of registration.
19.81
Maintenance of registration file.
Requirements for an Operating Permit Under the IRC
19.91
Operating permit.
19.92
Information required in application for operating permit.
19.93
Applicant organization documents.
19.94
Trade names.
19.95
Issuance of operating permits.
19.96
Denial of permit.
19.97
Correction of permit.
19.98
Duration of permit.
19.99
Suspension or revocation of permit.
Subpart E—Changes to Registrations and Permits
19.111
Scope.
Rules for Amending a Registration
19.112
General rules for amending a registration.
19.113
Change in name of proprietor.
19.114
Changes in stockholders or persons with interest.
19.115
Change in officers, directors, members or managers.
19.116
Change in proprietorship.
19.117
Partnerships.
19.118
Change in location.
19.119
Change in premises.
19.120
Change in operations.
19.121
Change in production procedure.
19.122
Change in construction or use of buildings and equipment.
19.123
Statement of plant security.
Rules for Amending an Operating Permit
19.126
General rules for amending an operating permit.
19.127
Automatic termination of permits.
19.128
Change in name of proprietor.
19.129
Change in trade name.
19.130
Changes in stockholders or persons with interest.
19.131
Changes in officers, directors, members or managers.
19.132
Change in proprietorship.
19.133
Partnerships.
19.134
Change in location.
19.135
Change in operations.
Alternation of Plant Proprietors
19.141
Procedures for alternation of proprietors.
Conduct of Alternate Operations at a Plant
19.142
Alternate use of premises and equipment for customs purposes.
19.143
Alternation for other purposes.
19.144
Alternation of distilled spirits plant and volatile fruit-flavor concentrate plant premises.
Discontinuance of Operations
19.147
Notice of discontinuance of operations.
Subpart F—Bonds and Consents of Surety Bonding Requirements for a DSP
19.151
General.
19.152
Types of bonds.
19.153
Bond guaranteed by a corporate surety.
19.154
Bond guaranteed by deposit of securities.
19.155
Consent of surety bond terms—consent of surety.
19.156
Power of attorney for surety.
19.157
Disapproval of bonds and consents of surety.
Requirements for Operations and Withdrawal Bonds
19.161
Operations bond.
19.162
Operations bond for distilled spirits plant and adjacent bonded wine cellar.
19.163
Area operations bond.
19.164
Withdrawal bond.
19.165
Unit bonds.
19.166
Required penal sums.
19.167
Increase of bond coverage.
19.168
Superseding bonds.
19.169
Effect of failure to furnish a superseding bond.
19.170
Termination of bonds.
19.171
Surety notice of relief from bond liability.
19.172
Relief of surety from bond liability.
19.173
Release of pledged securities.
Subpart G—Construction, Equipment, and Security Requirements
19.181
General.
Tank Requirements
19.182
Tanks—general requirements.
19.183
Scale tanks.
19.184
Scale tank minimum graduations.
19.185
Testing scale tanks for accuracy.
Package Scale and Pipeline Requirements
19.186
Package scales.
19.187
Pipelines.
Measuring and Proofing Equipment Requirements
19.188
Measuring devices and proofing instruments.
Other Plant Requirements
19.189
Identification of structures, areas, apparatus, and equipment.
19.190
Office facilities for TTB use.
19.191
Signs.
19.192
Security.
19.193
Breaking Government locks.
Subpart H—Special (Occupational) Tax
19.201
Liability for special (occupational) tax.
19.202
Special (occupational) tax rates.
19.203
Eligibility for the reduced rate.
19.204
Exemption for alcohol fuel producers.
19.205
Locations subject to tax.
19.206
Liability as a wholesale or retail dealer.
19.207
Special tax returns.
19.208
Multiple locations and multiple tax classes.
19.209
Signing special tax returns.
19.210
Employer identification number.
19.211
Issuance, distribution, and examination of special tax stamps.
19.212
Change in name.
19.213
Change in proprietorship.
19.214
Change in location.
Subpart I—Distilled Spirits Taxes
19.221
Scope.
Basic Provisions of Tax Law Affecting Spirits
19.222
Basic tax law provisions.
19.223
Persons liable for tax. Start Printed Page 26225
Requirements for Gauging and Tax Determination
19.225
Requirement to gauge and tax determine spirits.
19.226
Gauges for tax determination.
19.227
Determination of the tax.
Rules for Deferred Payment and Prepayment of Taxes
19.229
Deferred payment and prepayment of taxes.
19.230
Conditions requiring prepayment of taxes.
19.231
Accounting for bond coverage.
Requirements for Filing Tax Returns
19.233
Filing prepayment returns.
19.234
Filing deferred payment returns.
19.235
Deferred payment return periods—quarterly and semimonthly.
19.236
Due dates for returns.
19.237
Special rule for semimonthly filers for the month of September.
19.238
Payment by mail.
19.239
Form of payment.
19.240
Payment of tax by electronic fund transfer.
Requirements for Employer Identification Numbers
19.242
Employer identification number.
19.243
Application for employer identification number.
Effective Tax Rates
19.245
Tax credits under 26 U.S.C. 5010.
19.246
Computing the effective tax rate for a product.
19.247
Use of effective (actual) tax rates.
19.248
Standard effective tax rate.
19.249
Average effective tax rate.
19.250
Inventory reserve account.
Assessment of Taxes by TTB
19.253
Assessment of tax on spirits not accounted for or reported.
19.254
Assessment of tax for losses or unauthorized removals.
Additional Tax Provisions
19.256
Tax on wine.
19.257
Imported spirits.
19.258
Additional tax on nonbeverage spirits.
Subpart J—Claims
19.261
Scope.
Requirements for Filing Claims
19.262
General requirements for filing claims.
19.263
Claims on spirits, denatured spirits, articles, or wines lost or destroyed in bond—specific requirements.
19.264
Claims on spirits returned to bonded premises—specific requirements.
19.265
Claims relating to spirits lost after tax determination.
Rules Regarding Credits, Abatement, Remission, or Refund
19.266
Claims for credit of tax.
19.267
Adjustments for credited tax.
19.268
Allowance of remission, abatement, credit, or refund of tax.
Rules for Puerto Rican and Virgin Islands Spirits
19.269
Puerto Rican and Virgin Islands spirits.
Subpart K—Gauging
19.281
Scope.
19.282
General requirements for gauging and measuring equipment.
Required Gauges
19.283
When gauges are required.
19.284
Quantity determination of bulk spirits.
19.285
Proof determination of distilled spirits.
19.286
Gauging of spirits in bottles.
19.287
Gauging of alcoholic flavoring materials.
19.288
Determination of tare.
19.289
Production gauge.
Subpart L—Production of Distilled Spirits
19.291
General.
Notification of TTB When Beginning or Suspending Production Operations
19.292
Notice of operations.
Rules for Receipt, Use, and Disposal of Materials
19.293
Receipt of materials.
19.294
Removal of fermenting material.
19.295
Removal or destruction of distilling material.
19.296
Fermented materials.
19.297
Use of materials in production of spirits.
Rules for Production of Spirits
19.301
Distillation.
19.302
Treatment during production.
19.303
Addition of caramel to rum or brandy and addition of oak chips to spirits.
19.304
Production gauge.
19.305
Identification of spirits.
19.306
Entry.
19.307
Distillates containing extraneous substances.
Rules for Chemical By-Products
19.308
Spirits content of chemicals produced.
19.309
Disposition of chemicals.
19.310
Wash water.
Production Inventories
19.312
Physical inventories.
Rules for Redistillation
19.314
General.
19.315
Receipts for redistillation.
19.316
Redistillation.
Subpart M—Storage of Distilled Spirits
19.321
General.
Receipt and Storage of Spirits and Wines
19.322
Receipt and storage of bulk spirits and wines.
Rules for Filling and Changing Packages
19.324
Filling of packages from tanks.
19.325
Change of packages.
Rules for Mingling or Blending Spirits
19.326
Mingling or blending of spirits for further storage.
19.327
Packages dumped for mingling.
19.328
Determining age of mingled spirits.
19.329
Mingled spirits or wines held in tanks.
Use of Oak Chips and Caramel
19.331
Use of oak chips in spirits and caramel in brandy and rum.
Storage Inventories
19.333
Physical inventories.
Subpart N—Processing of Distilled Spirits
19.341
General.
Rules for Receipt and Use of Spirits, Wines, and Alcoholic Flavoring Materials
19.342
Receipt of spirits, wines, and alcoholic flavoring materials for processing.
19.343
Use of spirits, wines, and alcoholic flavoring materials.
19.344
Manufacture of nonbeverage products, intermediate products, or eligible flavors.
Obscuration Determination
19.346
Determining obscuration.
Filing Formulas With TTB
19.348
Formula requirements.
Rules for Bottling, Packaging, and Removal of Products
19.351
Removals from processing.
19.352
Bottling tanks.
19.353
Bottling tank gauge.
19.354
Bottling or packaging records.
19.355
Labels describing the spirits.
19.356
Alcohol content and fill.
19.357
Completion of bottling.
19.358
Cases.
19.359
Remnants.
19.360
Filling packages.
19.361
Removals by bulk conveyances or pipelines.
19.362
Rebottling.
19.363
Reclosing and relabeling.
19.364
Bottled-in-bond spirits.
19.365
Spirits not originally intended for export.
19.366
Alcohol.
Requirements for Processing Inventories
19.371
Inventories of wines and bulk spirits in processing.
19.372
Physical inventories of bottled and packaged spirits.
Subpart O—Denaturing Operations and Manufacture of Articles
19.381
General.
19.382
Formulas.
Rules for Denaturing Spirits and Testing Denaturants
19.383
Gauge for denaturation.
19.384
Adding denaturants to spirits.
19.385
Making alcohol or water solutions of denaturants.
19.386
Adjusting pH of denatured spirits.
19.387
Ensuring the quality of denaturants. Start Printed Page 26226
Rules for Storing Denatured Spirits and Filling Containers
19.388
Storing denatured spirits.
19.389
Filling containers from tanks.
19.390
Container marking requirements.
Rules for Mixing and Converting Denatured Spirits
19.391
Mixing denatured spirits.
19.392
Converting denatured alcohol to a different formula.
Rules for Restoration and Redenaturation, Inventories, and Manufacture of Articles; Records Required
19.393
Restoration and redenaturation of recovered denatured spirits and recovered articles.
19.394
Inventory of denatured spirits.
19.395
Manufacture of articles.
19.396
Required records.
Subpart P—Transfers, Receipts, and Withdrawals
19.401
Authorized transactions.
Transfers Between Bonded Premises
19.402
Authorized transfers in bond.
19.403
Application to receive spirits in bond.
19.404
Termination of application.
19.405
Consignor for in-bond shipments.
19.406
Reconsignment of in-bond shipments.
19.407
Consignee premises.
Receipt of Spirits From Customs Custody
19.409
General.
19.410
Age and fill date.
19.411
Recording gauge.
Marking Requirements for Imported Spirits
19.414
Marks on containers of imported spirits.
19.415
Marks on containers of Puerto Rican and Virgin Islands spirits.
Spirits Withdrawn Without Payment of Tax
19.418
Authorized withdrawals without payment of tax.
19.419
Withdrawals of wine spirits for use in wine production.
19.420
Withdrawals of spirits without payment of tax for experimental or research use.
19.421
Withdrawals of spirits for use in production of nonbeverage wine and nonbeverage wine products.
Spirits Withdrawn Free of Tax
19.424
Authorized withdrawals free of tax.
19.425
Withdrawal of spirits free of tax.
19.426
Withdrawal of spirits by the United States.
19.427
Removal of denatured spirits and articles.
19.428
Reconsignment.
Spirits Withdrawn on Production Gauge
19.431
Withdrawal of spirits on production gauge.
Rules for Taking Sample of Spirits
19.434
Spirits withdrawn from bonded premises.
19.435
Samples used on bonded premises.
19.436
Taxpayment of samples.
19.437
Labels.
Securing Conveyances
19.441
Securing of conveyances.
Subpart Q—Return of Spirits to Bonded Premises and Voluntary Destruction
19.451
Scope.
Conditions for Return of Spirits to Bond
19.452
Return of taxpaid spirits to bonded premises for destruction, denaturation, redistillation, reconditioning, or rebottling.
19.453
Return of bottled spirits for relabeling or reclosing.
19.454
Other authorized returns to bonded premises.
19.455
Return of spirits withdrawn for export with benefit of drawback.
19.457
Receipt of spirits abandoned to the United States.
Rules for Voluntary Destructions
19.459
Voluntary destruction.
Subpart R—Losses and Shortages
19.461
Losses and shortages in general.
19.462
Determination of losses in bond.
19.463
Loss of spirits from packages.
19.464
Losses after tax determination.
19.465
Shortages of bottled spirits.
Subpart S—Containers and Marks
19.471
General.
19.472
Need to determine use of spirits: industrial or nonindustrial.
Requirements for Containers
19.473
Authorized containers.
19.474
Spirits for nonindustrial use.
19.475
Spirits for industrial use.
19.476
Packages.
19.477
Use of bulk conveyances.
19.478
Construction requirements for bulk conveyances.
19.479
Restrictions on dispositions of bulk spirits.
Marking Requirements for Spirits
19.482
General.
19.483
Specifications for marks.
19.484
Marks on packages filled in production or storage.
19.485
Package identification numbers in production and storage.
19.486
Change of packages in storage.
19.487
Kind of spirits.
19.488
Marks on packages filled in processing.
19.489
Marks on cases filled in processing.
19.490
Numbering of packages and cases filled in processing.
19.491
Marks on containers of specially denatured spirits.
19.492
Marks on containers of completely denatured alcohol.
19.493
Caution label for completely denatured alcohol.
19.494
Additional marks on portable containers.
19.495
Marks on bulk conveyances.
19.496
Cases of industrial alcohol.
19.497
Obliteration of marks.
19.498
Relabeling and reclosing off bonded premises.
19.499
Authorized abbreviations to identify marks.
Subpart T—Liquor Bottle, Label, and Closure Requirements Authorized Liquor Bottles
19.511
Bottles authorized.
19.512
Bottles not constituting approved containers.
19.513
Distinctive liquor bottles.
Labeling Requirements
19.516
Certificate of label approval or exemption.
19.517
Statements required on labels under an exemption from label approval.
19.518
Name and address of bottler.
19.519
Labels for export spirits.
19.520
Spirits for shipment to Puerto Rico.
Closure Requirements
19.523
Affixing closures.
19.525
Reclosing.
Subpart U—[Reserved] Subpart V—Records and Reports General Rules for Records
19.571
Records in general.
19.572
Format of records.
19.573
Location of required records.
19.574
Availability of records.
19.575
Retention of records.
19.576
Preservation of records.
19.577
Documents that are not records.
19.578
Financial records and books of account.
19.580
Time for making entries in records.
19.581
Details of daily records.
19.582
Conversion from metric to U.S. units.
Production Records
19.584
Materials for the production of distilled spirits.
19.585
Production and withdrawal records.
19.586
Byproduct spirits production record.
Storage Records
19.590
Storage operations.
19.591
Package summary records.
19.592
Tank record of wine and spirits of less than 190 degrees of proof.
19.593
Tank summary record for spirits of 190 degrees or more of proof.
Processing Records
19.596
Processing records in general.
19.597
Manufacturing records.
19.598
Dump/batch records.
19.599
Bottling and packaging record.
19.600
Alcohol content and fill test record.
19.601
Finished products records.
19.602
Redistillation record.
19.603
Liquor bottle record.
19.604
Rebottling, relabeling, and reclosing records.
Denaturation and Article Manufacture Records
19.606
Denaturation records.
19.607
Article manufacture records.
Tax Records
19.611
Records of tax determination in general.
19.612
Summary record of tax determinations.
19.613
Average effective tax rate records. Start Printed Page 26227
19.614
Inventory reserve records.
19.615
Standard effective tax rate records.
Other Required Records
19.616
Record of samples.
19.617
Destruction record.
19.618
Gauge record.
19.619
Package gauge record.
19.620
Transfer record—consignor's responsibility.
19.621
Transfer record—consignee's responsibility.
19.622
Daily record of wholesale liquor dealer and taxpaid storeroom operations.
19.623
Record of inventories.
19.624
Removal of Puerto Rican and Virgin Islands spirits and rum imported from all other areas.
19.625
Shipping record for spirits and specially denatured spirits withdrawn free of tax.
19.626
Record of distilled spirits shipped to manufacturers of nonbeverage products.
19.627
Alternating premises record.
Filing Forms and Reports
19.631
Submission of transaction forms.
19.632
Submission of monthly reports.
19.634
Computer-generated reports and transaction forms.
Subpart W—Production of Vinegar by the Vaporizing Process Vinegar Plants in General
19.641
Application.
Qualification, Construction, and Equipment Requirements for Vinegar Plants
19.643
Qualification requirements.
19.644
Changes after original qualification.
19.645
Notice of permanent discontinuance of business.
19.646
Construction and equipment requirements.
Rules for Operating Vinegar Plants
19.647
Authorized operations.
19.648
Conduct of operations.
19.649
Restrictions on alcohol content.
Required Records for Vinegar Plants
19.650
Daily records.
Liability for Distilled Spirits Tax
19.651
Liability for distilled spirits tax.
Subpart X—Distilled Spirits for Fuel Use
19.661
Scope.
General
19.662
Definitions.
19.663
Application of other provisions.
19.665
Alternate methods or procedures.
19.666
Application for and use of an alternate method or procedure.
19.667
Emergency variations from requirements.
Liability for Taxes
19.669
Distilled spirits taxes.
19.670
Special (occupational) tax.
Obtaining a Permit
19.672
Types of plants.
19.673
Small plant permit applications.
19.674
TTB action on small plant applications.
19.675
Medium plant permit applications.
19.676
Large plant permit applications.
19.677
Large plant applications—organizational documents.
19.678
Criteria for issuance of permit.
19.679
Duration of permit.
19.680
Registration of stills.
Changes to Permit Information
19.683
Changes affecting permit applications.
19.684
Automatic termination of permits.
19.685
Change in type of alcohol fuel plant.
19.686
Change in name of proprietor.
19.687
Changes in officers, directors, members, managers, or principal persons.
19.688
Change in proprietorship.
19.689
Continuing partnerships.
19.690
Change in location.
Alternating Proprietorship
19.692
Qualifying for alternating proprietorship.
19.693
Operating requirements for alternating proprietorships.
Discontinuance of Business and Permit Suspension or Revocation
19.695
Notice of permanent discontinuance.
19.697
Permit suspension or revocation.
Bonds
19.699
General bond requirements.
19.700
Amount of bond.
Requirements for Construction, Equipment, and Security
19.703
Construction and equipment.
19.704
Security.
TTB Rights and Authorities
19.706
Supervision of operations.
Accounting for Spirits
19.709
Gauging.
19.710
Inventory of spirits.
Recordkeeping
19.714
General requirements for records.
19.715
Format of records.
19.716
Maintenance and retention of records.
19.717
Time for making entries in records.
19.718
Required records.
19.719
Spirits made unfit for beverage use in the production process.
Reports
19.720
Reports.
Redistillation
19.722
General rules for redistillation of spirits or fuel alcohol.
19.723
Effect of redistillation on plant size and bond amount.
19.724
Records of redistillation.
Rules for Use, Withdrawal, and Transfer of Spirits
19.726
Prohibited uses, transfers, and withdrawals.
19.727
Use on premises.
19.728
Withdrawal of spirits.
19.729
Withdrawal of fuel alcohol.
Transfer of Spirits Between Alcohol Fuel Plants
19.733
Authorized transfers between alcohol fuel plants.
19.734
Consignor for in-bond shipments.
19.735
Reconsignment while in transit.
19.736
Consignee for in-bond shipments.
Transfer of Spirits to and From Distilled Spirits Plants
19.739
Authorized transfers to or from distilled spirits plants.
Receipt of Spirits From Customs Custody
19.742
Authorized transfers from customs custody.
Materials for Making Spirits Unfit for Beverage Use
19.746
Authorized materials.
19.747
Other materials.
Rules for Taking Samples
19.749
Samples.
Marking Requirements
19.752
Marks.
Subpart Y—Paperwork Reduction Act
19.761
OMB control numbers assigned under the Paperwork Reduction Act.
Start Authority

Authority: 19 U.S.C. 81c, 1311; 26 U.S.C. 5001, 5002, 5004-5006, 5008, 5010, 5041, 5061, 5062, 5066, 5081, 5101, 5111-5113, 5142, 5143, 5146, 5148, 5171-5173, 5175, 5176, 5178-5181, 5201-5204, 5206, 5207, 5211-5215, 5221-5223, 5231, 5232, 5235, 5236, 5241-5243, 5271, 5273, 5301, 5311-5313, 5362, 5370, 5373, 5501-5505, 5551-5555, 5559, 5561, 5562, 5601, 5612, 5682, 6001, 6065, 6109, 6302, 6311, 6676, 6806, 7011, 7510, 7805; 31 U.S.C. 9301, 9303, 9304, 9306.

End Authority
Scope.

This part concerns the operation of distilled spirits plants in the United States. Topics covered in this part include: Permits and registration procedures; bond requirements; payment of taxes; filing of claims; production, storage, and processing operations; and maintenance of records.

Subpart A—General Provisions

Definitions.

As used in this part, the following terms shall have the meanings indicated unless either the context in which they are used requires a different meaning, or a different definition is prescribed for a particular subpart, section, or portion of this part:

Accurate mass flow meter. A mass flow meter for making volume determinations of bulk distilled spirits. A mass flow meter used for tax determination of bulk spirits must be certified by the manufacturer or other qualified person as accurate within a tolerance of +/−0.1%. A mass flow meter used for all other required volume Start Printed Page 26228determinations of bulk spirits must be certified by the manufacturer or other qualified person as accurate within a tolerance of +/−0.5%.

Administrator. The Administrator of the Alcohol and Tobacco Tax and Trade Bureau, the Department of the Treasury, Washington, DC., or a delegate or designee of the Administrator.

Alcoholic flavoring materials. Any nonbeverage product on which drawback has been or will be claimed under 26 U.S.C. 5131-5134, and any flavor imported free of tax which is unfit for beverage purposes. This term includes eligible flavors but does not include flavorings or flavoring extracts manufactured on the bonded premises of a distilled spirits plant as an intermediate product.

Application for registration. The application for registration of a distilled spirits plant that is required by 26 U.S.C. 5171(c).

Appropriate TTB officer. An officer or employee of the Alcohol and Tobacco Tax and Trade Bureau (TTB) authorized to perform any functions relating to the administration or enforcement of this part by TTB Order 1135.19, Delegation of the Administrator's Authorities in 27 CFR part 19, Distilled Spirits Plants.

Article. A product containing denatured spirits, which was manufactured under this part or part 20 of this chapter.

Bank. Any commercial bank.

Banking day. Any day that a bank is open to the public to carry on substantially all of its banking functions.

Basic permit. The document that authorizes a person to engage in a designated business or activity under the Federal Alcohol Administration Act.

Bond. A bond is a formal guarantee for payment of monies due to TTB, including taxes imposed by 26 U.S.C. Chapter 51, and any related fines, penalties or interest that the proprietor of a distilled spirits plant may incur, up to an amount specified by the bond (the bond “penal sum”).

Bonded premises. The premises of a distilled spirits plant, or part thereof, as described in the application for registration, on which the conduct of distilled spirits operations defined in 26 U.S.C. 5002 is authorized.

Bottler. A proprietor of a distilled spirits plant qualified under this part as a processor who bottles distilled spirits.

Bulk container. Any container approved by TTB having a capacity in excess of one wine gallon.

Bulk conveyance. A tank car, tank truck, tank ship, tank barge, or a compartment of any such conveyance, or any other container approved by the Administrator for the conveyance of comparable quantities of spirits, including denatured spirits and wines.

Bulk distilled spirits. Distilled spirits in a container having a capacity in excess of one wine gallon.

Business day. Any day, other than a Saturday, a Sunday, or a legal holiday (which includes any holiday in the District of Columbia and any statewide holiday in the particular State in which the claim, report, or return, as the case may be, is required to be filed, or the act is required to be performed).

Calendar quarter and quarterly. These terms refer to the three-month periods ending on March 31, June 30, September 30, or December 31.

Carrier. Any person, company, corporation, or organization, including a proprietor, owner, consignor, consignee, or bailee, who transports distilled spirits, denatured spirits, or wine in any manner for himself or others.

CFR. The Code of Federal Regulations.

Commercial bank. A bank, whether or not a member of the Federal Reserve system, which has access to the Federal Reserve Communications System or Fedwire (a communications network that allows Federal Reserve system member banks to effect a transfer of funds for their customers (or other commercial banks) to the Treasury Account at the Federal Reserve Bank of New York).

Container. A receptacle, vessel, or form of bottle, can, package, tank or pipeline (where specifically included) used or capable of being used to contain, store, transfer, convey, remove, or withdraw spirits and denatured spirits.

Denaturant or denaturing material. Any material authorized by part 21 of this chapter for addition to spirits in the production of denatured spirits.

Denatured spirits. Spirits to which denaturants have been added as provided in part 21 of this chapter.

Director of the service center. A director of an internal revenue service center.

Distilled spirits operations. Any authorized distilling, warehousing, or processing operation conducted on the bonded premises of a plant qualified under this part.

Distilled spirits plant. An establishment which is qualified under this part to conduct distilled spirits operations.

Distiller. Any person who:

(1) Produces distilled spirits from any source or substance;

(2) Brews or makes mash, wort, or wash fit for distillation or for the production of distilled spirits (other than making or using of mash, wort, or wash in the authorized production of wine or beer, or in the production of vinegar by fermentation);

(3) By any process separates alcoholic spirits from any fermented substance; or

(4) Making or keeping mash, wort, or wash, has a still in his possession or use.

Distilling material. Any fermented or other alcoholic substance capable of, or intended for use in, the original distillation or other original processing of spirits.

District director. A district director of the Internal Revenue Service.

Effective tax rate. The net tax rate, after reduction for any credit allowable under 26 U.S.C. 5010 for wine and flavor content, at which the tax imposed on distilled spirits by 26 U.S.C. 5001 or 7652 is paid or determined.

Electronic fund transfer or EFT. Any transfer of funds effected by the proprietor's commercial bank, either directly or through a correspondent banking relationship, via the Federal Reserve Communications System or Fedwire to the Treasury Account at the Federal Reserve Bank of New York.

Eligible flavor. A flavor which:

(1) Is of a type that is eligible for drawback of tax under 26 U.S.C. 5134;

(2) Was not manufactured on the premises of a distilled spirits plant; and

(3) Was not subjected to distillation on distilled spirits plant premises such that the flavor does not remain in the finished product.

Eligible wine. Wine on which tax would be imposed by paragraph (1), (2), or (3) of 26 U.S.C. 5041(b) but for its removal to distilled spirits plant premises and which has not been subject to distillation at a distilled spirits plant after receipt in bond.

Export or exportation. A separation of goods from the mass of goods belonging to the United States with the intention of uniting them with the goods belonging to a foreign country or any possession of the United States, including the Commonwealth of Puerto Rico, the U.S. Virgin Islands, American Samoa, and Guam.

Fermenting material. Any material that will be subject to a process of fermentation in order to produce distilling material.

Fiduciary. A guardian, trustee, executor, administrator, receiver, conservator, or any person acting in any fiduciary capacity for any person.

Fiscal year. The period October 1st of one calendar year through September 30th of the following calendar year.

Gallon or wine gallon. The liquid measure equivalent to the volume of 231 cubic inches. Start Printed Page 26229

General premises. Any business office, service facility, or other part of the premises described in the notice of registration other than bonded premises.

In bond. When used to describe spirits, denatured spirits, articles, or wine, this term refers to spirits, denatured spirits, articles, or wine held under bond to secure the payment of the taxes imposed by 26 U.S.C. Chapter 51, and on which those taxes have not been determined. The term also refers to such spirits, denatured spirits, articles, or wine on the bonded premises of a distilled spirits plant, and such spirits, denatured spirits, or wines that are in transit between bonded premises (including, in the case of wine, bonded wine cellar premises). In addition, the term refers to spirits in transit from customs custody to bonded premises, and spirits withdrawn without payment of tax under 26 U.S.C. 5214, and with respect to which relief from liability has not occurred under 26 U.S.C. 5005(e)(2).

Industrial use. When used with reference to spirits, the meaning given to the term in § 19.472.

Intermediate product. Any product manufactured according to an approved formula under part 5 of this chapter, intended not for sale as such but for use in the manufacture of a distilled spirits product.

IRC. The Internal Revenue Code of 1986, as amended.

Kind. Except as provided in § 19.597, when used with reference to spirits, this term means class and type as prescribed in part 5 of this chapter. When used with reference to wines, this term means the class and type of wine as prescribed in part 4 of this chapter.

Letterhead application. A letter on a company's letterhead or other piece of paper that clearly shows the company name from a company representative with signature authority. A letterhead application is subject to TTB approval prior to any change requested in the letter.

Letterhead notice. A letter on a company's letterhead or other piece of paper that clearly shows the company name from a company representative with signature authority. A letterhead notice does not require approval by TTB prior to the change.

Liquor bottle. A bottle made of glass or earthenware, or of other suitable material approved by the Food and Drug Administration, which has been designed or is intended for use as a container for distilled spirits for sale for beverage purposes and which has been determined by the Administrator to adequately protect the revenue.

Liter. A metric unit of capacity equal to 1,000 cubic centimeters or 1,000 milliliters (ml) of alcoholic beverage, and equivalent to 33.814 fluid ounces.

Lot identification number. The package identification number described in 27 CFR 19.485.

Mash, wort, wash. Any fermented material capable of, or intended for, use as a distilling material.

National Revenue Center: TTB's National Revenue Center, in Cincinnati, Ohio.

Nonindustrial use. When used with reference to spirits, the meaning given to the term in § 19.472.

Operating permit. The document issued pursuant to 26 U.S.C. 5171(d), that authorizes a person to engage in the business or operation described in the document.

Package. A cask or barrel or similar wooden container, or a drum or similar metal container.

Package identification number. The lot identification number described in 27 CFR 19.595.

Person. An individual, trust, estate, partnership, association, company, corporation, limited liability company, limited liability partnership, or other entity recognized by law as a person.

Plant or distilled spirits plant. An establishment qualified under this part for distilling, warehousing, processing, or any combination thereof.

Plant number. The number assigned to a distilled spirits plant by TTB.

Processor. Except as otherwise provided in 26 U.S.C. 5002(a)(6), any person qualified under this part who manufactures, mixes, bottles, or otherwise processes distilled spirits or denatured spirits or who manufactures any article.

Proof. The ethyl alcohol content of a liquid at 60 degrees Fahrenheit, stated as twice the percentage of ethyl alcohol by volume.

Proof gallon. A gallon of liquid at 60 degrees Fahrenheit which contains 50 percent by volume of ethyl alcohol having a specific gravity of 0.7939 at 60 degrees Fahrenheit referred to water at 60 degrees Fahrenheit as unity, or the alcoholic equivalent thereof.

Proof of distillation. The composite proof of the spirits when the production gauge is made, or, if the spirits are reduced in proof prior to the production gauge, the proof of the spirits prior to that reduction, unless the spirits are subsequently redistilled at a higher proof than the proof prior to reduction.

Proprietor. The person qualified under this part to operate a distilled spirits plant.

Reconditioning. The dumping of distilled spirits products in bond after their bottling or packaging, for filtration, clarification, stabilization, reformulation, or other purposes, other than destruction, denaturation, redistillation, or rebottling.

Recovered article. An article containing specially denatured spirits salvaged without all of its original ingredients, or an article containing completely denatured alcohol salvaged without all of the denaturants for completely denatured alcohol, as provided in part 20 of this chapter.

Season. The period from January 1st through June 30th (spring season) or the period from July 1st through December 31st (fall season).

Secretary. The Secretary of the Treasury or his delegate or designee.

Service center. An Internal Revenue Service Center in any of the Internal Revenue regions.

Spirits or distilled spirits. The substance known as ethyl alcohol, ethanol, or spirits of wine in any form (including all dilutions and mixtures thereof, from whatever source or by whatever process produced) but not denatured spirits unless specifically stated. The term does not include mixtures of distilled spirits and wine, bottled at 48° proof or less, if the mixture contains more than 50 percent wine on a proof gallon basis.

Spirits residues. Residues, containing distilled spirits, of a manufacturing process related to the production of an article under part 20 of this chapter.

Tax-determined or determined. When used with reference to any distilled spirits to be withdrawn from bond on determination of tax, that the taxable quantity of spirits has been established.

Taxpaid. When used with reference to distilled spirits, all applicable taxes imposed by law on those spirits have been determined or paid as provided by law.

This chapter. Chapter I, Title 27, Code of Federal Regulations (27 CFR chapter I).

Transfer in bond. The removal of spirits, denatured spirits and wines from one bonded premises to another bonded premises.

Treasury Account. The General Account of the Department of the Treasury at the Federal Reserve Bank of New York.

TTB. The Alcohol and Tobacco Tax and Trade Bureau of the Department of the Treasury.

TTB bond. The internal revenue bond as prescribed in 26 U.S.C. Chapter 51.

TTB officer. An officer or employee of TTB authorized to perform any function relating to the administration or enforcement of the provisions of this part. Start Printed Page 26230

Unfinished spirits. Spirits in the production system prior to production gauge.

U.S.C. The United States Code.

Warehouseman. A proprietor of a distilled spirits plant qualified under this part to store bulk distilled spirits.

We. TTB and TTB officers.

Wine gallon. The liquid measure equivalent to the volume of 231 cubic inches.

Wine spirits. Spirits authorized for use in wine production by 26 U.S.C. 5373.

Territorial extent of these regulations.

This part applies to all States of the United States and the District of Columbia.

Related regulations.

Other regulations relating to distilled spirits and distilled spirits plants are listed below:

27 CFR part 1—Basic Permit Requirements Under the Federal Alcohol Administration Act, Nonindustrial Use of Distilled Spirits and Wine, Bulk Sales and Bottling of Distilled Spirits.

27 CFR part 4—Labeling and Advertising of Wine.

27 CFR part 5—Labeling and Advertising of Distilled Spirits.

27 CFR part 16—Alcoholic Beverage Health Warning Statement.

27 CFR part 17—Drawback on Taxpaid Distilled Spirits Used in Manufacturing Nonbeverage Products.

27 CFR part 20—Distribution and Use of Denatured Alcohol and Rum.

27 CFR part 21—Formulas for Denatured Alcohol and Rum.

27 CFR part 22—Distribution and Use of Tax-Free Alcohol.

27 CFR part 24—Wine.

27 CFR part 25—Beer.

27 CFR part 26—Liquors and Articles from Puerto Rico and the Virgin Islands.

27 CFR part 27—Importation of Distilled Spirits, Wines, and Beer.

27 CFR part 28—Exportation of Alcohol.

27 CFR part 29—Stills and Miscellaneous Regulations.

27 CFR part 30—Gauging Manual.

27 CFR part 31—Alcohol Beverage Dealers.

27 CFR part 71—Rules of Practice in Permit Proceedings.

31 CFR part 225—Acceptance of Bonds Secured by Government Obligations in Lieu of Bonds with Sureties.

Recovery and reuse of denatured spirits in manufacturing processes.

Certain activities involving distilled spirits are not covered by this part. Instead, manufacturers who engage in any of the activities listed below are required to comply with the regulations in part 20 of this chapter relating to the use and recovery of spirits or denatured spirits. Those activities are:

(a) Use of denatured spirits, or articles or substances containing denatured spirits, in a process wherein any part or all of the spirits, including denatured spirits, are recovered;

(b) Use of denatured spirits in the production of chemicals which do not contain spirits but which are used on the permit premises in the manufacture of other chemicals resulting in spirits as a by-product; or

(c) Use of chemicals or substances which do not contain spirits or denatured spirits (but which were manufactured with specially denatured spirits) in a process resulting in spirits as a by-product.

(26 U.S.C. 5273)

Manufacturing products unfit for beverage use.

(a) General. Except as provided in paragraph (b) of this section, apothecaries, pharmacists, or manufacturers who manufacture or compound any of the following products using tax paid or tax determined distilled spirits are not required to register and qualify as a distilled spirits plant (processor):

(1) Medicines, medicinal preparations, food products, flavors, flavoring extracts, and perfume, conforming to the standards for approval of nonbeverage drawback products found in §§ 17.131-17.137 of this chapter, whether or not drawback is actually claimed on those products. Except as provided in paragraph (c) of this section, a formula does not need to be submitted if drawback is not desired;

(2) Patented and proprietary medicines that are unfit for use for beverage purposes;

(3) Toilet, medicinal, and antiseptic preparations and solutions that are unfit for use for beverage purposes;

(4) Laboratory reagents, stains, and dyes that are unfit for use for beverage purposes; and

(5) Flavoring extracts, syrups, and concentrates that are unfit for use for beverage purposes.

(b) Exception for beverage products. Products identified in part 17 of this chapter as being fit for beverage use are alcoholic beverages. Bitters, patent medicines, and similar alcoholic preparations that are fit for beverage purposes, although held out as having certain medicinal properties, are also alcoholic beverages. These products are subject to the provisions of this part and must be manufactured on the bonded premises of a distilled spirits plant.

(c) Submission of formulas and samples. When requested by the appropriate TTB officer or when the manufacturer wishes to ascertain whether a product is unfit for beverage use, the manufacturer will submit the formula and a sample of the product to the appropriate TTB officer for examination. TTB will determine whether the product is unfit for beverage use and whether manufacture of the product is exempt from qualification requirements.

(d) Change of formula. If TTB finds that a product manufactured under paragraph (a) of this section is being used for beverage purposes, or for mixing with beverage spirits other than by a processor, TTB will notify the manufacturer to stop manufacturing the product until the formula is changed to make the product unfit for beverage use and the change is approved by the appropriate TTB officer. However, the provisions of this paragraph will not prohibit products which are unfit for beverage use from use in small quantities for flavoring drinks at the time of serving for immediate consumption.

(26 U.S.C. 5002, 5171)

Subpart B—Administrative and Miscellaneous Provisions

Right of entry and examination.

A TTB officer may enter any distilled spirits plant, any other premises where distilled spirits operations are carried on, or any structure or place used in connection with distilled spirits operations, at any time of day or night. A TTB officer may examine materials, equipment, and facilities, and make any gauges and inventories. Whenever a TTB officer states his or her name and office and demands admittance but is not admitted into the premises or place, the TTB officer is authorized to use all necessary force to gain entry.

(26 U.S.C. 5203)

Furnishing facilities and assistance.

The proprietor is required to provide TTB officers with the necessary facilities and assistance in order to gauge spirits in any container, or to examine any apparatus, equipment, containers, or materials, at the distilled spirits plant. Also, when requested by a TTB officer, the proprietor must:

(a) Open any doors and open for examination any containers on the plant premises; and

(b) Provide the exact locations (including the number of containers at each location) of all packages and similar portable approved containers within a given lot and the locations (that is, buildings, rooms, or areas) where spirits in cases are stored.

(26 U.S.C. 5202, 5203)

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Assignment of officers and supervision of operations.

(a) General. TTB may assign TTB officers to a distilled spirits plant and utilize controls, such as Government locks and seals, if TTB decides that those measures are necessary to effectively supervise the operations. If TTB decides that such supervision is necessary:

(1) The proprietor must obtain approval of the plant's hours of operations from the appropriate TTB officer;

(2) TTB may require the proprietor to submit a schedule of operations to a TTB officer; and

(3) TTB may require the proprietor to delay any distilled spirits operation until the proprietor can conduct it in the presence of a TTB officer.

(b) Notification of supervision. If TTB determines that supervision of plant operations is necessary, TTB will notify the proprietor of the extent to which TTB intends to supervise those operations. If TTB determines later that TTB supervision is no longer necessary, the appropriate TTB officer will notify the proprietor of that fact.

(26 U.S.C. 5201, 5202, 5553)

Delegation of the Administrator's authorities to the appropriate TTB officer.

Most of the regulatory authorities of the Administrator contained in this part are delegated to appropriate TTB officers. These TTB officers are specified in TTB Order 1135.19, Delegation of the Administrator's Authorities in 27 CFR Part 19, Distilled Spirits. Interested persons may obtain a copy of this order by accessing the TTB Web site (http://www.ttb.gov) or by mailing a request to the Alcohol and Tobacco Tax and Trade Bureau, National Revenue Center, 550 Main Street, Room 1516, Cincinnati, OH 45202.

Forms prescribed.

(a) TTB prescribes and makes available all forms required by this part. Persons completing forms must furnish all of the information required by each form, as indicated by the headings and instructions on the form or as required by these regulations. Each form must be filed in accordance with this part and the instructions for the form.

(b) Persons may request forms from the TTB National Revenue Center, 550 Main Street, Suite 8002, Cincinnati, Ohio 45202, or by accessing them on the TTB Web site (http://www.ttb.gov).

(26 U.S.C. 5207)

Modified forms.

If a proprietor wishes to modify a form prescribed by these regulations, the proprietor must submit an application for approval of an alternate method or procedure (see §§ 19.26 and 19.27) to the appropriate TTB officer. The proprietor may not use a modified form until TTB approves the application. The application to modify a form must be accompanied by:

(a) A copy of each proposed form with typical entries; and

(b) A statement explaining the need to use a modified form.

(26 U.S.C. 5207)

Detention of containers.

(a) General. A TTB officer may detain any container containing, or supposed to contain, spirits when the appropriate TTB officer believes that the required tax on those spirits has not been paid or determined that the removal of the container is in violation of law or the provisions of this part. The appropriate TTB officer will hold the container at a safe place until it is determined whether the detained property is subject to forfeiture.

(b) Limitation. A detention under paragraph (a) of this section may not exceed 72 hours without process of law or intervention of the appropriate TTB officer. However, the detained container may be kept on the premises beyond the 72-hour period without process of law or intervention if the person possessing the container immediately before its detention executes a waiver of this 72-hour limitation on detention of the container.

(26 U.S.C. 5311)

Samples for the United States.

TTB officers are authorized to take samples of spirits, denatured spirits, articles, wines, or other materials from a distilled spirits plant for analysis, testing, or to determine whether the product complies with the law and regulations. When TTB removes a sample from a plant, TTB will give the proprietor a receipt for the sample.

(26 U.S.C. 5201, 5203, 5214, 5362)

Discontinuance of storage facilities.

If TTB determines that a proprietor's bonded storage facility for spirits is unsafe or unfit for use, or causes excessive waste or loss of spirits, TTB can require that the proprietor discontinue using the facility. Further, TTB can require the transfer of the spirits stored in the facility to another storage facility. The transfer will take place at such time and under such supervision as TTB may require, and will be at the expense of the owner or warehouseman of the spirits. If the owner or warehouseman fails to transfer the spirits within the prescribed time or to pay the expense of the transfer, as ascertained and determined by the appropriate TTB officer, the spirits may be seized and sold. TTB will first apply the proceeds of such sale to the payment of the taxes due on the spirits and then to the cost and expense of the sale and removal, and the remaining balance, if any, will be paid over to the owner or warehouseman.

(26 U.S.C. 5236)

Installation of meters, tanks, and other apparatus.

The appropriate TTB officer may require the proprietor to install meters, tanks, pipes, or any other apparatus at the proprietor's plant if that officer decides that the equipment is necessary for the protection of the revenue. If the proprietor refuses or fails to install any such apparatus when instructed to do so, the proprietor will not be permitted to conduct business as a distilled spirits plant.

(26 U.S.C. 5552)

Alternate Methods or Procedures and Experimental Operations

Alternate methods or procedures.

(a) General. The appropriate TTB officer may approve the use of an alternate method or procedure that varies from the regulatory requirements in this part if the proprietor shows good cause for its use and the alternate method or procedure:

(1) Is not contrary to law;

(2) Will not have the effect of waiving an existing regulatory requirement;

(3) Is consistent with the purpose and effect of the method or procedure prescribed in this part;

(4) Provides equal security to the revenue; and

(5) Will not cause an increase in cost to the Government and will not hinder TTB's administration of this part.

(b) Exceptions. TTB will not authorize the use of an alternate method or procedure relating to the giving of any bond, or to the assessment, payment, or collection of tax.

(26 U.S.C. 5552, 5556)

Application for and use of alternate method or procedure.

(a) Application. If a proprietor wishes to use an alternate method or procedure as described in § 19.26, the proprietor must submit a written letterhead application to the appropriate TTB officer for approval. The application Start Printed Page 26232must identify the method or procedure specified in the regulation, must describe the proposed alternate method or procedure in detail, and must explain why the alternate method or procedure is needed.

(b) Approval and use. The proprietor may not use an alternate method or procedure until the appropriate TTB officer has in writing approved the proprietor's application. During the period that the proprietor is authorized to use the alternate method or procedure, the proprietor must comply with any conditions imposed on its use by TTB. TTB may withdraw the approval to use the alternate method or procedure if TTB finds that the revenue is jeopardized, that the alternate method or procedure hinders effective administration of the laws or regulations, that the proprietor has violated any of the conditions imposed by TTB, or that the circumstances that gave rise to the need for the alternate method or procedure no longer exist.

(c) Retention. The proprietor must retain each alternate method or procedure approval as part of the proprietor's records and must make the approval available for examination by TTB officers upon request.

(26 U.S.C. 5552, 5556)

Emergency variations from requirements.

(a) Application. A proprietor may request emergency approval of the use of a method or procedure relating to construction, equipment, and methods of operation that represents a variance from the requirements of this part. When a proprietor wishes to use an emergency method or procedure, the proprietor must submit a written letterhead application to the appropriate TTB officer for approval; the proprietor may send the application via regular mail, e-mail, or facsimile transmission. The application must describe the proposed emergency method or procedure and the emergency situation it will address. For purposes of this section, an emergency is considered to exist only if it results from a weather or other natural event or from an accident or other event not involving an intentional act on the part of the proprietor.

(b) Approval. The appropriate TTB officer may approve in writing the use of an emergency method or procedure if the proprietor demonstrates that an emergency exists and the proposed method or procedure:

(1) Is not contrary to law;

(2) Is necessary to address the emergency situation;

(3) Will afford the same security and protection to the revenue as intended by the regulations; and

(4) Will not hinder the effective administration of this subpart.

(c) Terms of emergency method or procedure approval and use.

(1) The proprietor may not use an emergency method or procedure until the application has been approved by TTB except when the emergency method or procedure requires immediate implementation to correct a situation that threatens life or property. In a situation involving a threat to life or property, the proprietor may implement the corrective action while concurrently notifying the appropriate TTB officer by telephone of the action and filing the required written application. Use of the emergency method or procedure must conform to any conditions specified in the approval.

(2) The proprietor must retain the emergency method or procedure approval as part of the proprietor's records and must make the approval available for examination by TTB officers upon request.

(3) The emergency method or procedure will automatically terminate when the situation that created the emergency no longer exists. TTB may withdraw the approval to use the emergency method or procedure if TTB finds that the revenue is jeopardized, that the emergency method or procedure hinders effective administration of the laws or regulations, or that the proprietor has failed to follow any of the conditions specified in the approval. When use of the emergency method or procedure terminates, the proprietor must revert to full compliance with all applicable regulations.

(26 U.S.C. 5178, 5556)

Exemptions for national defense and disasters.

Whenever TTB finds it is necessary to meet the requirements of national defense or necessary or desirable by reason of disaster, TTB may temporarily exempt the proprietor from any provisions of the internal revenue laws and the provisions of this part relating to distilled spirits, except those requiring the payment of tax.

(26 U.S.C. 5561, 5562)

Pilot operations.

Except for the filing of any bond or the payment of any tax provided for in 26 U.S.C. Chapter 51, TTB may waive any regulatory provision in this part for temporary pilot or experimental operations for the purpose of facilitating the development and testing of improved methods of governmental supervision (necessary for the protection of the revenue) over plants. For this purpose, the appropriate TTB officer may, with the approval of the proprietor thereof, designate any plant for such operations. Any waiver granted under this section must be in writing and signed by the appropriate TTB officer. The waiver will identify the provisions of law and/or regulations waived and the period of time during which the waiver will be effective. The appropriate TTB officer may terminate the waiver if he or she determines that the waiver jeopardizes the revenue.

(26 U.S.C. 5554)

Experimental distilled spirits plants.

(a) General. The appropriate TTB officer may authorize the establishment and operation of experimental plants for specific and limited periods of time solely for experimentation in, or development of:

(1) Sources of materials from which spirits may be produced;

(2) Processes by which spirits may be produced or refined; or

(3) Industrial uses of spirits.

(b) Waiver. The appropriate TTB officer may waive any provision of 26 U.S.C. Chapter 51 (other than 26 U.S.C. 5312) and of this part (other than § 19.33) to the extent necessary to effectuate the purposes of 26 U.S.C. 5312(b) as outlined in paragraph (a) of this section. However, TTB will not waive the payment of any tax on spirits removed from an experimental plant.

(c) Applicability of special tax. An experimental distilled spirits plant established under this section is subject to the registration requirement for special (occupational) tax prescribed under subpart H of this part.

(26 U.S.C. 5312)

Application to establish experimental plants.

(a) Application requirements. Any person who wishes to establish an experimental plant for the purposes specified in § 19.32 must submit a written application to the appropriate TTB officer and obtain approval of the proposed experimental plant. The application must:

(1) State the nature, extent, and purpose of the operations to be conducted;

(2) Describe the operations and equipment;

(3) Describe the location of the plant (including the proximity to other premises or operations subject to the provisions of 26 U.S.C. Chapter 51); and Start Printed Page 26233

(4) Describe the security measures to be provided.

(b) Bond. The applicant must file a bond with the application in such form and penal sum as required by the appropriate TTB officer.

(c) Approval of application. Before approving the application, the appropriate TTB officer may require that the applicant submit additional information if necessary. TTB will not approve the application and permit operations until the plant conforms to the specifications stated in the application and the applicant complies with provisions of 26 U.S.C. Chapter 51 and with any provisions in this part that are not specifically waived.

(26 U.S.C. 5312)

Experimental or research operations by scientific institutions and colleges of learning.

(a) General. The appropriate TTB officer may authorize any scientific university, college of learning, or institution of scientific research to produce, receive, blend, treat, test, and store spirits, without payment of tax, for experimental or research use but not for consumption (other than in organoleptic tests) or sale, in quantities as may be reasonably necessary for those purposes.

(b) Waiver. For purposes of this section, the appropriate TTB officer may waive any provision of 26 U.S.C. Chapter 51 (other than 26 U.S.C. 5312) or this part (other than this section and § 19.35) to the extent necessary to effect the purposes of 26 U.S.C. 5312(a). However, TTB will not waive the payment of any tax on distilled spirits removed from any university, college, or institution.

(c) Applicability of special tax. A person conducting experimental or research operations authorized under this section is subject to the registration requirement for special (occupational) tax prescribed under subpart H of this part.

(26 U.S.C. 5312)

Application by scientific institutions and colleges of learning for experimental or research operations.

(a) Application requirements. A university, college, or institution that wants to conduct any of the experimental or research operations mentioned in § 19.34, must submit a written application to the appropriate TTB officer and obtain approval for the proposed operations. The application may be submitted on letterhead. The application must:

(1) State the nature, extent, and purpose of the operations to be conducted;

(2) Describe the operations and equipment;

(3) Describe the location where the operations will be conducted (including identification of the building or buildings, or the portions thereof to be used); and

(4) Describe the security measures to be provided.

(b) Bond. The applicant must file a bond with the application in such form and amount as required by the appropriate TTB officer.

(c) Approval of application. Before approving the application, the appropriate TTB officer may require that the applicant submit additional information. The applicant may not commence operations until authorized by the appropriate TTB officer.

(d) Records and reports. Any university, college, or institution authorized to conduct experimental or research operations must maintain records of the quantities of spirits produced, received, and used each day and must make these records available for inspection by TTB officers. Universities, colleges, or institutions authorized to conduct experimental or research operations are not required to submit reports of operations to TTB unless specifically required by the appropriate TTB officer.

(e) Discontinuance of operations. When operations authorized under this section are discontinued, the university, college, or institution must destroy all remaining spirits and notify the appropriate TTB officer that operations are discontinued.

(26 U.S.C. 5312)

Spirits produced in industrial processes.

(a) General. Except as otherwise provided in paragraph (b) of this section, any person who produces distilled spirits in an industrial process, including spirits produced as a byproduct in connection with chemical or other processes, is considered to be a distiller and therefore is required to qualify as a distilled spirits plant and is subject to the registration requirement for special (occupational) tax under the provisions of 26 U.S.C. Chapter 51 and this part.

(b) Waiver. TTB may waive application of any provision of 26 U.S.C. Chapter 51, or of this part, involving the production of nonpotable chemical mixtures containing spirits, including any provision relating to qualification (except the registration requirement for special [occupational] tax) if the mixture is produced:

(1) For transfer to the bonded premises of a distilled spirits plant for completion of distilling; or

(2) As a by-product which would require expensive and complex equipment for the recovery of spirits, and the mixture:

(i) Would be destroyed on the premises where produced; or

(ii) Would contain a minimum quantity of spirits, taking into account the procedure employed, would not be subjected to further operations solely for the purification or recovery of spirits, and would be found by TTB to be as nonpotable and as difficult to recover as completely denatured alcohol.

(26 U.S.C. 5201)

Application for industrial processes waiver.

(a) Application for waiver. If the producer of a nonpotable chemical mixture containing spirits, as described in § 19.36, wishes to obtain a waiver from the provisions of 26 U.S.C. Chapter 51, or of this part, the producer must submit a written waiver application to the appropriate TTB officer. The application must include the following information, as applicable:

(1) The name and address of the producer;

(2) Chemical composition and source of the nonpotable mixture;

(3) Approximate percentages of chemicals and spirits in the mixture;

(4) Method of operation proposed;

(5) Bonded premises where the mixture will be distilled; and

(6) Any other pertinent information required by the appropriate TTB officer.

(b) Approval of waiver. The appropriate TTB officer may approve the waiver if it will not jeopardize the revenue and will not hinder supervision of the operations. Approval of the application may be subject to such terms and conditions, and to the furnishing of any bond, that the appropriate TTB officer determines is necessary.

(26 U.S.C. 5201)

Approval of required documents.

Except as otherwise provided in this part, the appropriate TTB officer is authorized to approve all documents, bonds, and consents of surety required by this part.

(26 U.S.C. 5171, 5172, 5173, and 5551)

“Penalty of Perjury” Declaration

Execution under penalty of perjury.

(a) Declaration. When TTB requires under this part that a document be executed under penalty of perjury, the document must contain the following declaration:

Start Printed Page 26234

I declare under the penalties of perjury that this [insert type of document, such as report, or claim], including supporting documents, has been examined by me and, to the best of my knowledge and belief, is true, correct, and complete.

(b) Signing. The declaration in paragraph (a) of this section must bear the signature and title of the proprietor or a duly authorized representative.

(26 U.S.C. 6065)

Subpart C—Restrictions on Production, Location, and Use of Plants

Home production of distilled spirits prohibited.

A person may not produce distilled spirits at home for personal use. Except as otherwise provided by law, distilled spirits may only be produced by a distilled spirits plant registered with TTB under the provisions of 26 U.S.C. 5171. All distilled spirits produced in the United States are subject to the tax imposed by 26 U.S.C. 5001.

(26 U.S.C. 5001, 5601, and 5602)

Rules for Location and Use of a DSP

Restrictions on location of plants.

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.

(26 U.S.C. 5178)

Continuity of plant premises.

As a general rule, the premises of a distilled spirits plant must be continuous except for separations by public waterways, roads, or carrier rights-of-way. However, the appropriate TTB officer may approve the registration of the plant where there are separations of the plant premises and all parts of the plant are in the same general location if:

(a) There is no jeopardy to revenue caused by the separation of premises; and

(b) The separation of premises does not create administrative problems for TTB.

(26 U.S.C. 5178)

Use of distilled spirits plant premises.

(a) General. A person may not conduct any business or operation on the premises of a distilled spirits plant unless the business or operation is authorized by the notice of registration on file with TTB or authorized under § 19.55.

(b) Bonded premises. The proprietor must use the bonded premises of a distilled spirits plant exclusively for distilled spirits operations. The proprietor must store packaged spirits, cases of spirits, or portable containers of spirits in a room or building on bonded premises. TTB may approve another method of storage as an alternate method or procedure. However, the proprietor must apply for, and receive approval for another method of storage from the appropriate TTB officer in accordance with § 19.27 before using that method.

(c) General premises. General premises are any portion of the distilled spirits plant described in the notice of registration other than bonded premises. A person may not use the general premises of a distilled spirits plant for any operation required under the provisions of this part to be conducted on bonded premises.

(26 U.S.C. 5178)

Other businesses.

(a) The appropriate TTB officer may authorize the conduct of a business other than that of a distiller, warehouseman, or processor on the premises of a distilled spirits plant if:

(1) The business is not prohibited by 26 U.S.C 5601(a)(6);

(2) The business will not jeopardize the revenue;

(3) The business will not hinder TTB's effective administration of this part; and

(4) The business will not be contrary to law.

(b) A person who wishes to conduct another business at a distilled spirits plant must apply for such authorization in accordance with §§ 19.73(b) or 19.120(b) and receive approval from the appropriate TTB officer before operating the other business. The approval will specify whether the other business may be conducted on the bonded premises or on the general premises.

(26 U.S.C. 5178)

Bonded warehouses not on premises qualified for production of spirits.

(a) Criteria for establishment. As a general rule, if a person intends to establish a bonded warehouse, other than one established on the bonded premises of a distilled spirits plant qualified for the production of spirits or contiguous to such premises, the proposed warehouse must have a minimum capacity of 250,000 wine gallons of bulk spirits and the need for such a warehouse must be clearly shown. TTB may consider an application to establish a bonded warehouse with less capacity provided a need is clearly shown.

(b) Application. The applicant must submit a separate written request along with the application for registration explaining the need for the bonded warehouse. TTB may approve the application for registration if:

(1) The proposed location for the warehouse will not jeopardize the revenue; and

(2) The applicant provides evidence showing sufficient need for establishing such a warehouse.

(c) Special conditions. Based on the application and request, TTB may limit the type of operations that may be conducted at the bonded warehouse. The proprietor of a warehouse approved for a limited type of operation may not expand or change the operation to include any other type of operation without application to and approval of the appropriate TTB officer.

(26 U.S.C. 5171 and 5178)

Conveyance of Spirits or Wines on Plant Premises

Taxpaid spirits or wines on bonded premises.

The proprietor may move tax paid or tax determined spirits or wines across bonded premises. However, tax paid or tax determined spirits or wines may not be stored or allowed to remain on the bonded premises. The proprietor must keep tax paid or tax determined spirits or wines separate from spirits or wines on which tax has not been paid or determined. Spirits returned to bonded premises under the provisions of 26 U.S.C. 5215 may remain on bonded premises.

(26 U.S.C. 5201 and 5612)

Conveyance of untaxpaid spirits or wines within a distilled spirits plant.

(a) The proprietor may move untaxpaid spirits or wines:

(1) Between different portions of the bonded premises at the same distilled spirits plant or across any other premises of that plant;

(2) Over any public thoroughfare by uninterrupted transportation; or

(3) Over a private roadway by uninterrupted transportation. The owner or lessee of the private roadway must agree in writing to allow TTB officers access to the roadway to perform their duties.

(b) The conveyance of untaxpaid spirits or wines under paragraph (a) of this section is subject to the following conditions. The proprietor:

(1) May not store or allow the untaxpaid spirits or wines to remain on Start Printed Page 26235any premises other than the bonded premises;

(2) Must keep the untaxpaid spirits or wines separate from spirits on which the tax has been paid or determined;

(3) Must submit to the appropriate TTB officer a description of the means, route of the conveyance, and the areas of the distilled spirits plant, public thoroughfare or roadways across which spirits or wines will be conveyed, and a copy of any agreement with the owner or lessee of a private roadway. The appropriate TTB officer must approve the proposed means and route of conveyance and any agreement; and

(4) Must provide a consent of surety on the operations or unit bond (TTB F 5000.18) extending the terms of the bond to cover the conveyance of the spirits or wines.

(26 U.S.C. 5201 and 5601)

Spirits in customs custody.

A proprietor may move distilled spirits that are in customs custody across distilled spirits plant premises if the proprietor:

(a) Submits to the appropriate TTB officer a description of the means and route of the conveyance and the areas of the distilled spirits plant across which spirits will be conveyed and receives approval from the appropriate TTB officer for the method of movement;

(b) Does not store or allow the spirits to remain on the premises of the distilled spirits plant;

(c) Moves the spirits expeditiously, and keeps the spirits separate and apart from other spirits on the premises; and

(d) Provides a consent of surety on the operations or unit bond (TTB F 5000.18) extending the terms of the bond to cover the conveyance of the spirits.

(26 U.S.C. 5201)

Subpart D—Registration of a Distilled Spirits Plant and Obtaining a Permit

Registration and permits in general.

Except as otherwise provided in this part, a person may only conduct operations as a distiller, warehouseman, or processor of distilled spirits on the bonded premises of a distilled spirits plant. In order to establish a distilled spirits plant, a person must register the plant with TTB and obtain an operating permit and/or a basic permit. This subpart covers the requirements for registering a plant and obtaining an operating permit under the IRC. Part 1 of this chapter covers the requirements for obtaining a basic permit under the Federal Alcohol Administration Act.

(26 U.S.C. 5171)

Requirements for Registering a Plant

General requirements for registration.

(a) Establishment. A person who wishes to establish a distilled spirits plant must intend to conduct operations as a distiller, as a warehouseman, or both. A person cannot establish a distilled spirits plant solely for the processing of spirits.

(b) Registration. Before beginning operations as a distilled spirits plant, a person must submit an application for registration and receive approval from TTB. The following rules apply to an application for registration:

(1) The applicant must apply for registration on form TTB F 5110.41, Registration of Distilled Spirits Plant, and submit the application to the appropriate TTB officer;

(2) TTB will consider all written statements, affidavits, and other documents supporting the application as part of the application;

(3) If the appropriate TTB officer determines that the original application for registration cannot be approved because it contains incomplete or incorrect information, TTB may require that the applicant file an additional form TTB F 5110.41, or submit other documentation to complete or correct the original application; and

(4) The applicant must file any additional forms or submit any other documentation within 60 days of the appropriate TTB officer's request.

(26 U.S.C. 5171, 5172)

Information required in application for registration.

(a) General. The application for registration on form TTB F 5110.41, Registration of Distilled Spirits Plant, must include the following information:

(1) The serial number;

(2) The name, principal business address, and location of the distilled spirits plant if different from the applicant's business address;

(3) The operations that will be conducted;

(4) The purpose for filing the application;

(5) A statement describing the type of business organization and the persons involved in the business in accordance with § 19.93. However, if any of this information is already on file with the appropriate TTB officer, the applicant may advise TTB that the information on file is part of the application for registration;

(6) A list of any operating permits, basic permits, operations bonds, withdrawal bonds, and/or unit bonds, including the amount of any bond(s) and the name of the surety on the bond;

(7) In the case of a corporation, a list of the offices and officers authorized by the articles of incorporation or the board of directors to sign or act on behalf of the corporation;

(8) A description of the plant in accordance with § 19.74;

(9) A list of major equipment in accordance with § 19.75;

(10) A statement of the maximum number of proof gallons that will be produced in the distillery during a period of 15 days, stored on the bonded premises, and in transit to the bonded premises. This statement is not required if the operations or unit bond is in the maximum amount;

(11) A statement that accounting records will be maintained in accordance with generally accepted accounting principles;

(12) A statement of plant security measures in accordance with § 19.76;

(13) The following information if the applicant intends to operate as a distiller:

(i) Total proof gallons of spirits that can be produced daily;

(ii) A statement of production procedures in accordance with § 19.77; and

(iii) A statement as to whether spirits will be redistilled;

(14) The following information if the applicant intends to operate as a warehouseman:

(i) A description of the storage system; and

(ii) Total amount of bulk wine gallons that can be stored; and

(15) The following information if the applicant intends to operate as a processor:

(i) A statement whether spirits will or will not be bottled, denatured, redistilled, and whether articles will be manufactured; and

(ii) A description of the storage system for spirits bottled and cased or otherwise packaged and placed in approved containers for removal from bonded premises.

(b) Other business. If the applicant intends to conduct any other business on the distilled spirits plant premises as authorized under § 19.55, the following information must be submitted with the application:

(1) A description of the business;

(2) A list of buildings and equipment that will be used; and

(3) A statement of the relationship of the business to the distilled spirits operations at the plant.

(c) Additional information. The applicant must furnish any additional information needed by TTB to determine if the application for registration should be approved.

Start Printed Page 26236

(26 U.S.C. 5171, 5172, 6001)

Description of the plant.

As required by § 19.73(a)(8), the application for registration must include a description of the distilled spirits plant. This information must:

(a) Describe each tract of land covering the distilled spirits plant;

(b) Clearly distinguish between the bonded premises and any general premises;

(c) Provide directions and distances in enough detail to enable the appropriate TTB officer to readily determine the boundaries of the plant;

(d) Describe each building and outside tank that will be used for production, storage, and processing of spirits and for denaturing spirits, articles, or wines. The description must include the location, size, construction, and arrangement with reference to each by a designated number or letter; and

(e) Specify when only a room or floor of a building will be used for plant operations and provide the location and description of the building, floor, and room.

(26 U.S.C. 5172)

Major equipment.

As required by § 19.73(a)(9), the application for registration must include a list of the major plant equipment. If the equipment is set up and used for the production, storage, or processing of distilled spirits, wine, denatured spirits, or articles, the list must provide the following information:

(a) The serial number and capacity of each tank in the plant. The list does not need to include any bulk containers having a capacity of less than 101 wine gallons on the plant premises if those containers do not meet the criteria of a tank under § 19.182 (perks, small totes, etc.);

(b) The serial number, kind, capacity, and intended use of each still in the plant. The capacity is the estimated maximum proof gallons of spirits capable of being produced every 24 hours, or for column stills a statement of the diameter of the base and number of plates; and

(c) The serial number of each condenser.

(26 U.S.C. 5172, 5179)

Statement of plant security.

As required by § 19.73(a)(12), the application for registration must include a statement of plant security. This statement must include the following information:

(a) A general description of plant security, including methods used to secure buildings or plant operations located within a portion of a building and outdoor tanks;

(b) A statement regarding the use of guard personnel;

(c) A statement regarding the use of any electronic or mechanical alarm system;

(d) A statement certifying that locks used will meet the requirements of § 19.192(f); and

(e) A list of persons, by their position and title, who have the responsibility for the custody and access to keys for the locks.

(26 U.S.C. 5171, 5172)

Statement of production procedure.

(a) As required by § 19.73(a)(13)(ii), the application for registration must include a statement of the step-by-step production procedure used to produce spirits from an original source. The statement must begin with the treating, mashing, or fermenting of the raw materials or substances and continue through each step of the distilling, purifying, and refining procedure to the production gauge. The statement must include the kind and approximate quantity of each material or substance used in producing, purifying, or refining each type of spirits that will be produced.

(b) If the applicant intends to redistill spirits in the production account, the applicant must submit and receive approval for such redistillation on form TTB F 5110.38, Formula for Distilled Spirits under the Federal Alcohol Administration Act.

(26 U.S.C. 5172, 5201, 5222, 5223, 5555)

Power of attorney.

An applicant or proprietor of a distilled spirits plant must execute and submit to the appropriate TTB officer form TTB F 1534 (5000.8), Power of Attorney, for each person authorized to sign or to act on behalf of the applicant or proprietor unless the authority has been granted in the application for registration.

(26 U.S.C. 5172)

Registry of stills.

Section 29.55 of this chapter requires that every person having possession, custody, or control of a still or distilling apparatus must register the still or distilling apparatus. When a person lists a still or distilling apparatus with the application for registration as required by § 19.75(b) and receives approval of the registration, that person has fulfilled the requirement to register the still or distilling apparatus. See § 29.55 of this chapter for additional provisions regarding stills and distilling apparatus.

(26 U.S.C. 5172, 5179)

Approved notice of registration.

A person may not operate a distilled spirits plant unless a valid notice of registration has been approved by TTB authorizing the businesses and operations to be conducted at such plant. When approved by the appropriate TTB officer, the application for registration constitutes the notice of registration of the distilled spirits plant. A distilled spirits plant will not be registered or reregistered under this subpart until the applicant has complied with all requirements of law and regulations relating to the qualification of the business or operations in which the applicant intends to engage. In any instance where a person is required to have a bond or permit and the bond or permit becomes invalid, then the notice of registration also becomes invalid. Another application for registration must be filed and a new notice of registration approved by TTB before the business or operation at such plant may be resumed. Reregistration of a plant is not required when a new bond or a strengthening bond is filed in accordance with §§ 19.167 or 19.168.

(26 U.S.C. 5171, 5172)

Maintenance of registration file.

The proprietor must maintain the registration documents on the plant premises in a loose-leaf file that is current, complete, and readily available for inspection by the appropriate TTB officer.

(26 U.S.C. 5172)

Requirements for an Operating Permit Under the IRC

Operating permit.

(a) Except as provided in paragraph (b) of this section, a person must obtain an operating permit under the IRC in order to:

(1) Distill for industrial use;

(2) Warehouse spirits for industrial use;

(3) Denature spirits;

(4) Warehouse spirits (without bottling) for non-industrial use;

(5) Bottle or package spirits for industrial use;

(6) Manufacture articles; or

(7) Engage in any other distilling, warehousing, or processing operation not required to be covered by a basic permit under the Federal Alcohol Administration Act (49 Stat. 978; 27 U.S.C. 203, 204).

(b) Exception. The requirement to obtain an operating permit does not apply to an agency of a State, or Start Printed Page 26237political subdivision of a State, or an officer or employee of, and acting for, such an agency.

(26 U.S.C. 5171, 5271)

Information required in application for operating permit.

(a) In order to obtain an operating permit, a person must complete an application on form TTB F 5110.25, Application for Operating Permit Under 26 U.S.C. 5171(d). TTB will consider all written statements, affidavits and other documents submitted in support of the application as part of the application.

(b) The application on form TTB F 5110.25 must include the following information:

(1) The name and principal address of the business;

(2) The address of the plant if different from the business address;

(3) A description of the operation(s) to be conducted;

(4) A statement of the business organization and the persons involved in the business as required under § 19.93; and

(5) A list of trade names as required under § 19.94.

(c) A TTB officer may request that any person listed under § 19.93(a)(1)(ii), § 19.93(a)(3)(iii), § 19.93(b)(1) and § 19.93(b)(2) submit to TTB a statement as to whether that person has ever:

(1) Been convicted of a felony or misdemeanor under Federal or State law, other than a misdemeanor conviction for a traffic violation;

(2) Been arrested or charged with any violation of State or Federal law, other than an arrest or charge for a misdemeanor traffic violation; or

(3) Applied for, held, or been connected with a permit issued under Federal law to manufacture, distribute, sell or use spirits or products containing spirits, or held any financial interest in any business covered by any such permit, and if so, give the permit number, classification, period of operation and details regarding any denial, suspension, revocation or other termination.

(d) If any of the information required in paragraphs (b)(4) or (c)(3) of this section is on file with the appropriate TTB officer, the applicant may, by incorporation by reference, state that the information is made a part of the application for an operating permit.

(e) The applicant must provide any additional information that the appropriate TTB officer may request in order to determine whether the application should be approved.

(26 U.S.C. 5171, 5271)

Applicant organization documents.

(a) Supporting information. Sections 19.73(a)(5) and 19.92(a)(4) require that the application for registration and the application for an operating permit include information about the business organization of the applicant. The applicant must provide the following information as applicable:

(1) If the applicant is a corporation—

(i) The corporate charter or other documentation that provides proof of corporate existence or incorporation;

(ii) Names and addresses of directors and officers;

(iii) Certified minutes, or extracts of board of directors meetings, that authorize specific individuals to sign for the corporation; and

(iv) A statement showing the number of shares of each class of stock or other evidence of ownership, authorized and outstanding, and the voting rights of the respective owners or holders.

(2) If the applicant is a partnership, a copy of the articles of partnership or association, or certificate of partnership or association if required to be filed by any State, county, or municipality.

(3) If the applicant is a limited liability company or limited liability partnership—

(i) A copy of the articles of organization;

(ii) A copy of the operating agreement; and

(iii) The names and addresses of all members and managers.

(b) Statement of interest.

(1) Sole proprietorships and general partnerships. In the case of an individual owner or a general partnership, the applicant must provide the name and address of each person having an interest in the business and a statement indicating whether the interest appears in the name of the interested person or in the name of another person.

(2) Limited liability entities. In the case of a corporation, limited liability partnership, limited liability company, or other legal entity in which some or all of the owners have limited personal liability for the activities of the entity, the applicant must provide the following information about persons having an interest in the business:

(i) The names and addresses of the 10 persons that have the largest ownership or other interest in each of the classes of ownership of the applicant and the nature and amount of ownership or other interest of each person.

(ii) The name of the person in whose name the interest appears. If the corporation is wholly owned or controlled by another corporation, the appropriate TTB officer may request the same information regarding ownership for the parent corporation.

(26 U.S.C. 5172, 5271)

Trade names.

(a) Operating permits. The applicant must include a list of any trade names used in the operation of the plant with form TTB F 5110.25, Application for Operating Permit Under 26 U.S.C. 5171(d). The applicant must show the operations for which the trade name will be used and identify the offices where the trade name is registered. The applicant must also submit copies of any certificate or other document filed or issued for each trade name.

(b) Basic permits. If the applicant is required to have a basic permit under the Federal Alcohol Administration Act (49 Stat. 978; 27 U.S.C. 203, 204) for distilling, warehousing, or processing operations, then the applicant must follow the regulations under that Act for the approval and use of trade names.

(26 U.S.C. 5271)

Issuance of operating permits.

TTB will issue only one operating permit for a distilled spirits plant. The permit will designate the operations that are authorized at the plant. The proprietor must post the permit at the distilled spirits plant and have it available for inspection by appropriate TTB officers.

(26 U.S.C. 5171, 5271)

Denial of permit.

TTB will conduct proceedings for the denial of an application for an operating permit in accordance with the procedures set forth in part 71 of this chapter if the appropriate TTB officer has reason to believe that:

(a) The applicant (including, in the case of a corporation, any officer, director, or principal stockholder, and, in the case of a partnership, a partner) is, by reason of business experience, financial standing, or trade connections, not likely to maintain operations in compliance with 26 U.S.C. Chapter 51, or the regulations issued thereunder;

(b) The applicant failed to disclose any material information required, or has made a false statement as to any material fact in connection with the application; or

(c) The premises where the applicant proposes to conduct the operations are not adequate to protect the revenue.

(26 U.S.C. 5271)

Correction of permit.

If requested by the appropriate TTB officer, a proprietor must immediately return for correction any operating Start Printed Page 26238permit that contains an error.

(26 U.S.C. 5271)

Duration of permit.

The proprietor may conduct the operations authorized by the operating permit on a continuing basis unless:

(a) The proprietor voluntarily surrenders the permit;

(b) TTB suspends or revokes the permit pursuant to § 19.99; or

(c) The permit is automatically terminated under its own terms or in accordance with § 19.127.

(26 U.S.C. 5271)

Suspension or revocation of permit.

TTB will conduct proceedings for the revocation or suspension of an operating permit in accordance with the procedures set forth in part 71 of this chapter if the appropriate TTB officer has a reason to believe that the proprietor or any person associated with the operating permit:

(a) Has not complied in good faith with the provisions of 26 U.S.C. Chapter 51, or the regulations issued thereunder;

(b) Has violated the conditions of the permit;

(c) Has made a false statement as to any material fact in the application for the permit;

(d) Has failed to disclose any required material information;

(e) Has violated or conspired to violate any law of the United States relating to intoxicating liquor;

(f) Has been convicted either of any offense under Title 26, U.S.C., punishable as a felony, or of any conspiracy to commit such an offense; or

(g) Has not engaged in any of the operations authorized by the permit for a period of more than 2 years.

(26 U.S.C. 5271)

Subpart E—Changes to Registrations and Permits

Scope.

This subpart explains the requirements for amending a distilled spirits plant registration and, if applicable, an operating permit. For information regarding amendments to a basic permit issued under the Federal Alcohol Administration Act, see part 1 of this chapter.

(26 U.S.C. 5171)

Rules for Amending a Registration

General rules for amending a registration.

If there is a change in any of the information in the proprietor's current, approved notice of registration, the proprietor must amend the registration within 30 days of the change unless another time period is specified in this subpart. To amend a registration the proprietor must submit in writing to the appropriate TTB officer any information necessary to make the registration file current and accurate.

(a) TTB F 5110.41. Except when a letterhead application or letterhead notice procedure is allowed under this subpart, the proprietor must submit an amended form TTB F 5110.41, Registration of Distilled Spirits Plant, for changes that affect the registration. If the changes affect only parts or pages of the registration the proprietor only needs to submit the necessary pages or information that will make the registration file current.

(b) Letterhead Applications. For certain changes specified in this subpart the proprietor may submit a letterhead application for a change instead of an amended form TTB F 5110.41. The letterhead application must identify the distilled spirits plant to which the change applies and clearly identify the change. Any change is subject to TTB approval. The appropriate TTB officer may, at any time, require that the proprietor submit an amended application on form TTB F 5110.41 if administrative difficulties occur as a result of the letterhead application.

(c) Letterhead Notices. For certain changes specified in this subpart only a letterhead notice is required. The letterhead notice must identify the distilled spirits plant to which the change applies and clearly identify the change. A letterhead notice does not require approval by TTB. The appropriate TTB officer may, at any time, require that the proprietor submit an amended application on form TTB F 5110.41 if administrative difficulties occur as a result of the letterhead notice.

(26 U.S.C. 5171, 5172)

Change in name of proprietor.

If the name of the of the proprietor changes, the proprietor may not conduct operations under the new name before TTB approves the amended registration. The proprietor must file either an amended form TTB F 5110.41, Registration of Distilled Spirits Plant, or a letterhead application to reflect the change. However, the proprietor does not have to file a new bond or consent of surety.

(26 U.S.C. 5172, 5271)

Changes in stockholders or persons with interest.

The proprietor must notify TTB of any changes in the list of stockholders or persons with interest that was filed with TTB as required by § 19.93. If the change results in a change of control, the proprietor must file form TTB F 5110.41, Registration of Distilled Spirits Plant, within 30 days of the change. If the change does not cause a change of control the proprietor:

(a) May file a letterhead notice to amend the registration;

(b) May file the amended notice on May 1 of each year rather than within 30 days of the change, or on any other date that the appropriate TTB Officer may approve; and

(c) Must incorporate all changes submitted by letterhead notice in the next form TTB F 5110.41 filed.

(26 U.S.C. 5172, 5271)

Change in officers, directors, members or managers.

(a) General. If there is a change in the list of officers, directors, members or managers that the proprietor filed as required by § 19.93 the following rules apply:

(1) The proprietor must file an amended form TTB F 5110.41, Registration of Distilled Spirits Plant, or a letterhead notice to reflect the change;

(2) The proprietor must provide the name and address of each new officer, director, member or manager; and

(3) The proprietor must incorporate all changes submitted by letterhead notice in the next form TTB F 5110.41 filed.

(b) Waiver. The appropriate TTB officer may waive the requirement to amend the registration if the change only relates to corporate officers listed on the original or current registration who are no longer connected with the operations covered by the registration.

(26 U.S.C. 5171, 5172)

Change in proprietorship.

(a) General. If there is a change in proprietorship at a distilled spirits plant, the following requirements apply to the outgoing proprietor and to the incoming (successor) proprietor.

(1) Outgoing proprietor. An outgoing proprietor must comply with the requirements of § 19.147. An outgoing proprietor may transfer spirits to its successor in accordance with § 19.141.

(2) Incoming proprietor. A successor to the proprietorship of a plant that holds a registration:

(i) Must file form TTB F 5110.41, Registration of Distilled Spirits Plant, and receive from TTB an approved notice of registration of the plant;

(ii) Must file the required bonds; and

(iii) May adopt the approved formulas of its predecessor in accordance with § 5.28 and § 20.63 of this chapter. Start Printed Page 26239

(b) Fiduciary. If the successor to the proprietorship of a plant is an administrator, executor, receiver, trustee, assignee or other fiduciary, the successor must comply with the provisions of paragraph (a)(2) of this section. The following rules also apply in this case:

(1) The fiduciary may furnish a consent of surety to extend the terms of the predecessor's bond instead of filing a new bond;

(2) The fiduciary may incorporate by reference in the application for registration on form TTB F 5110.41 any information contained in the predecessor's application for registration that is still current;

(3) The successor must furnish a certified copy of the order of the court or other pertinent document showing the successor's qualification as fiduciary; and

(4) The effective date of the qualifying documents that the fiduciary files will be the date of the court order, the date specified in the order whereby the fiduciary assumes control, or if there is no court order, the date that the fiduciary assumed control.

(26 U.S.C. 5172)

Partnerships.

(a) If there is a death or insolvency of a partner in the business registered under this part, the surviving partner or partners may continue to operate under the notice of registration if:

(1) The partnership is not terminated under the laws of the particular state but continues until the winding up of the partnership affairs is complete;

(2) The surviving partner or partners have exclusive right to the control and possession of the partnership assets for purposes of liquidation and settlement; and

(3) A consent of surety is filed where the surety and the surviving partner or partners agree to remain liable on the operations or unit bond.

(b) If the surviving partner or partners acquire the business upon settlement of the partnership, the surviving partner or partners must file as an incoming proprietor and receive an approved notice of registration of the plant in accordance with § 19.116(a).

(26 U.S.C. 5172)

Change in location.

If the location of the plant changes, the proprietor must:

(a) File form TTB F 5110.41, Registration of Distilled Spirits Plant, to amend the registration;

(b) File a new bond or a consent of surety on form TTB F 5000.18; and

(c) Not begin operations at the new location prior to approval of the amended registration.

(26 U.S.C. 5172, 5271, 5173)

Change in premises.

If the proprietor intends to extend or curtail any part of the plant premises, except under alternate operations that are covered by § 19.142 and § 19.143, the proprietor must file form TTB F 5110.41, Registration of Distilled Spirits Plant, to amend the registration. The proprietor must not extend or curtail any premises or equipment before the amended registration is approved.

(26 U.S.C. 5172)

Change in operations.

(a) If the proprietor wishes to conduct additional operations involving spirits, other than those approved on the current registration, the proprietor must:

(1) File form TTB F 5110.41, Registration of Distilled Spirits Plant, to amend the registration; and

(2) Not engage in the additional operations prior to approval of the amended registration.

(b) If the proprietor wishes to engage in another business that is authorized under § 19.55 the proprietor must:

(1) File form TTB 5110.41 to amend the registration;

(2) Include the information required under § 19.73(b); and

(3) Not engage in the other business until approval of the amended registration is received.

(26 U.S.C. 5171, 5172, 5271)

Change in production procedure.

If the proprietor plans to produce a new product or make a change to the production procedure that will affect the designation of the product or substantially affect the character of the product, the proprietor must:

(a) File form TTB F 5110.41, Registration of Distilled Spirits Plant, to amend the registration;

(b) Provide a new statement of production procedure as described in § 19.77; and

(c) Receive approval of the amended registration before implementing the change in the production procedure.

(26 U.S.C. 5172)

Change in construction or use of buildings and equipment.

(a) The proprietor must submit a letterhead notice before making any material change in the construction or use of buildings or equipment at the plant other than changes covered by § 19.119, § 19.142 and § 19.143. The proprietor must:

(1) Describe the proposed change in detail;

(2) Keep a copy of the letterhead notice on file with the current notice of registration; and

(3) Incorporate the change in the next amendment to the registration submitted on form TTB F 5110.41, Registration of Distilled Spirits Plant, unless the appropriate TTB officer requires immediate submission of an amended form TTB F 5110.41.

(b) The proprietor may make emergency changes in construction or use of buildings and equipment without prior letterhead notice. However, the proprietor must promptly report any emergency change to the appropriate TTB officer.

(26 U.S.C. 5172)

Statement of plant security.

If the proprietor makes changes to the personnel listed, or procedures contained in, the statement of plant security filed under § 19.76, the proprietor must:

(a) File a form TTB F 5110.41, Registration of Distilled Spirits Plant, or a letterhead application to amend the registration, in the case of any change in the description of plant security, employment of guard personnel, use of electronic or mechanical alarm system, or certification of required locks required under § 19.76 (a) through (d);

(b) File a letterhead notice for any change in personnel who have custody and access to keys for the required locks as provided under § 19.76(e); and

(c) Incorporate any changes filed by letterhead notice in the next amendment to the registration on form TTB F 5110.41 submitted, unless the appropriate TTB officer requires an immediate submission of form TTB F 5110.41.

(26 U.S.C. 5171, 5172)

Rules for Amending an Operating Permit

General rules for amending an operating permit.

(a) When and how to amend. If there is a change in any of the information that the proprietor provided as part of the current approved application for an operating permit, the proprietor must amend the operating permit by submitting written documentation in accordance with this section to the appropriate TTB officer in writing within 30 days of the change unless another time period is specified in this subpart.

(1) TTB F 5110.25. Except when a letterhead application or letterhead notice procedure is allowed under this Start Printed Page 26240subpart, the proprietor must amend the operating permit by submitting an amended form TTB F 5110.25, Application for Operating Permit Under 5171(d). If the changes only affect parts or pages of the application for an operating permit the proprietor only needs to submit the necessary pages or information that will make the permit file current.

(2) Letterhead applications. For certain changes specified in this subpart, the proprietor may submit a letterhead application instead of an amended form TTB F 5110.25. The letterhead application must identify the distilled spirits plant for which the application applies. The letterhead application change is subject to TTB approval. The appropriate TTB officer may, at any time, require that the proprietor submit an amended application on form TTB F 5110.25 if administrative difficulties occur as a result of the letterhead application.

(3) Letterhead notices. For certain changes noted in this subpart only a letterhead notice is required. A letterhead notice does not require approval by TTB. The appropriate TTB officer may, at any time, require that the proprietor submit amended application on form TTB F 5110.25 if administrative difficulties occur as a result of the letterhead notice.

(b) FAA permits. If there are changes that affect a basic permit issued under the Federal Alcohol Administration Act, the proprietor must amend the basic permit in accordance with the procedures set forth in part 1 of this chapter.

(26 U.S.C. 5171, 5172)

Automatic termination of permits.

(a) Operating Permits. An operating permit is not transferable. The proprietor's operating permit will automatically terminate in the following circumstances:

(1) If the operations that are authorized by the permit are leased, sold or transferred;

(2) If the company is dissolved on a certain date by an event specified in the laws of the State where the company operates; or

(3) In the case of a corporation, if actual or legal control of the corporation changes, directly or indirectly, whether by reason of change in stock ownership or control, by operation of law, or in any other manner, the permit will terminate 30 days after the change in control. However, if an application for a new permit covering the operations is made within this 30 day period, then the operating permit may remain in effect until TTB takes final action upon the new application. TTB's final action on the new application will automatically terminate the outstanding permit.

(b) Basic Permits. For provisions related to the automatic termination of an FAA Act basic permit, see part 1 of this chapter.

(26 U.S.C. 5271)

Change in name of proprietor.

If the name of the proprietor changes, the proprietor must file a letterhead application to amend the operating permit. The proprietor may not conduct operations under the new name before TTB approves the amended operating permit. However, the proprietor does not have to file a new bond or consent of surety.

(26 U.S.C. 5172, 5271)

Change in trade name.

If the proprietor intends to change or add a trade name that will be used in the operation of the plant, the proprietor must file a letterhead application to amend the operating permit. The proprietor may not conduct operations under the new trade name before TTB approves the amended operating permit. However, the proprietor will not be required to file a new bond or consent of surety.

(26 U.S.C. 5271)

Changes in stockholders or persons with interest.

The proprietor must notify TTB of any changes in the list of stockholders or persons with interest that was filed with TTB as required by § 19.93(b). If the change results in a change of control, the proprietor must file form TTB F 5110.25, Application for Operating Permit Under 5171(d), within 30 days of the change. If the change does not cause a change in control the proprietor:

(a) May file a letterhead notice to amend the operating permit;

(b) May file the amended notice the May 1st following the change in control year rather than within 30 days of the change, or on any other date that the appropriate TTB Officer may approve; and

(c) Must incorporate all changes submitted by letterhead notice in the next form TTB F 5110.25 filed.

(26 U.S.C. 5172, 5271)

Changes in officers, directors, members or managers.

(a) General. If there is a change in the list of officers, directors, members or managers that the proprietor filed as required by § 19.93, the proprietor must:

(1) File form TTB F 5110.25 Application for Operating Permit Under 5171(d) or a letterhead notice to amend the operating permit;

(2) Provide the name and address for each new officer, director, member or manager; and

(3) Incorporate all changes submitted by letterhead notice in the next TTB F 5110.25 filed.

(b) Waiver. The appropriate TTB officer may waive the requirement to amend the operating permit if the changes relate to corporate officers listed on the original or current permit who are no longer connected with the operations covered by the permit.

(26 U.S.C. 5172, 26 U.S.C. 5171)

Change in proprietorship.

(a) General. If there is a change in proprietorship at a distilled spirits plant that holds an operating permit, the following requirements apply to the outgoing proprietor and to the incoming (successor) proprietor.

(1) Outgoing proprietor. An outgoing proprietor must comply with the requirements of § 19.147. An outgoing proprietor may transfer spirits to its successor an accordance with § 19.141.

(2) Successor proprietor. A successor to the proprietorship of a plant that holds an operating permit:

(i) Must file form TTB 5110.25 Application for Operating Permit Under 5171(d) and obtain an operating permit;

(ii) Must file the required bonds; and

(iii) May adopt the approved formulas of its predecessor in accordance with § 5.28 and § 20.63 of this chapter.

(b) Fiduciary. If the successor to the proprietorship of a plant is an administrator, executor, receiver, trustee, assignee or other fiduciary, the successor must comply with the provisions of paragraph (a)(2) of this section. The following rules also apply in this case:

(1) The fiduciary may furnish a consent of surety to extend the terms of the predecessor's bond instead of filing a new bond;

(2) The fiduciary may incorporate by reference in the Application for Operating Permit Under 5171(d) on form TTB F 5110.25 any information contained in the predecessor's application that is still current;

(3) The successor must furnish a certified copy of the order of the court or other pertinent document showing the successor's qualification as fiduciary; and

(4) The effective date of the qualifying documents that the fiduciary files will be the date of the court order, the date specified in the order whereby the fiduciary assumes control, or if there is no court order, the date that the fiduciary assumed control.

Start Printed Page 26241

(26 U.S.C. 5172)

Partnerships.

(a) If there is a death or insolvency of a partner in a company that holds an operating permit under this part, the surviving partner or partners may continue to operate under the operating permit if:

(1) The partnership is not terminated under the laws of the particular state but continues until the winding up of the partnership affairs is complete;

(2) The surviving partner or partners have exclusive right to the control and possession of the partnership assets for purposes of liquidation and settlement; and

(3) A consent of surety is filed where the surety and the surviving partner or partners agree to remain liable on the operations or unit bond.

(b) If the surviving partner or partners acquire the business upon settlement of the partnership, the surviving partner or partners must file as an incoming proprietor and receive approval of the operating permit as required under § 19.132(a)(2).

(26 U.S.C. 5172)

Change in location.

If the location of the plant changes, the proprietor must:

(a) File form TTB F 5110.25, Application for Operating Permit Under 5171(d), to amend the operating permit;

(b) File a new bond or a consent of surety on form TTB F 5000.18; and

(c) Not begin operations at the new location prior to approval of the amended operating permit.

(26 U.S.C. 5172, 5271, 5173)

Change in operations.

If the proprietor wishes to conduct additional operations involving spirits, other than those already approved on the current operating permit, the proprietor must:

(a) File form TTB F 5110.25 Application for Operating Permit Under 5171(d) to amend the permit; and

(b) Not engage in the additional operation prior to approval of the amended permit.

(26 U.S.C. 5171, 5172, 5271)

Alternation of Plant Proprietors

Procedures for alternation of proprietors.

(a) General. A proprietor may alternate use of a distilled spirits plant or part of the plant with one or more other proprietors. In order to do so, each proprietor must separately file and receive approval of the necessary registration, applications and bonds that are required by subparts D and E of this part. Each proprietor must also conduct operations and keep records in accordance with the regulations in this part. Where operations by alternating proprietors will be limited to parts of the plant, each proprietor must include the following in the notice of registration:

(1) A description of the areas, rooms or buildings, or combination of rooms or buildings that will alternate between proprietors;

(2) The method that the proprietor will use to separate the alternated premises from any premises that will not be alternated; and

(3) Diagrams of the parts of the plant that will be alternated.

(b) Letterhead notice. After a proprietor receives approval to alternate use of the premises with another proprietor, the alternating proprietors must separately file letterhead notices each time they intend to alternate use of the premises. The proprietors may file a single notice if the notice is signed by each proprietor or an authorized representative of each proprietor. The proprietors must submit the letterhead notice to the appropriate TTB officer prior to the first day that alternation is to take place. Proprietors must include the following with the notice:

(1) The plant number and the name of the proprietor filing the notice;

(2) Identification of the outgoing proprietor and incoming proprietor (by name and plant number);

(3) The effective date and hour of the alternation;

(4) Identification of any applicable diagrams provided with the registration of each proprietor filed under paragraph (a) of this section, showing the portions of the premises involved in the alternation;

(5) The purpose of the alternation;

(6) If distilling materials, unfinished or finished spirits, denatured spirits, or wine will be transferred to the incoming proprietor, a statement to that effect; and

(7) If denatured spirits or articles will be retained in the processing account in locked tanks during the period of alternate proprietorship, a statement to that effect.

(c) Alternation of production operations. In the case of an outgoing proprietor who intends to alternate production operations with another proprietor, the outgoing proprietor must:

(1) Completely process all distilling materials and unfinished spirits in any bonded areas, rooms, or buildings that will alternate unless the outgoing proprietor transfers them to the incoming proprietor; and

(2) Mark and remove all finished spirits in the name in which they were produced before a production gauge is made by the incoming proprietor.

(d) Alternation of storage operations. In the case of an outgoing proprietor who intends to alternate storage operations with another proprietor, the outgoing proprietor must:

(1) Transfer in bond any spirits or wines in any bonded areas, rooms, or buildings that will be alternated; and

(2) Execute a form TTB F 5000.18, Change of Bond (Consent of Surety), to continue in effect the operations or unit bond whenever operations of the areas, rooms, or buildings will be resumed by the outgoing proprietor following suspension of operations by the other proprietor.

(e) Alternation of processing operations. In the case of an outgoing proprietor who intends to alternate processing operations with another proprietor, the outgoing proprietor:

(1) Before the effective date and time of the alternation, must process to completion and remove from the affected area all spirits, denatured spirits, wines or articles located in any rooms, areas, or buildings that will alternate, or must transfer these spirits, wines and articles in bond to the incoming proprietor;

(2) Must execute a form TTB F 5000.18, Change of Bond (Consent of Surety), to continue in effect the operations or unit bond whenever operations of the areas, rooms, or buildings will be resumed by the outgoing proprietor following suspension of operations by the other proprietor; and

(3) May retain denatured spirits and articles in tanks locked with approved locks if the outgoing proprietor maintains custody and control of the locks and keys for the tanks. In this case, the outgoing proprietor must obtain a consent of surety on form TTB F 5000.18 to continue liability on the operations or unit bond for the tax on the denatured spirits or articles that retained in the locked tanks.

(f) Records. Each alternating proprietor must maintain its own records and submit its own reports. Records kept by an outgoing proprietor for spirits, wines, and alcoholic flavoring materials may be used by the incoming proprietor. All transfers of distilling materials, unfinished spirits, spirits, denatured spirits, and wines must be reflected in the records of each proprietor.

(26 U.S.C. 5172, 5271)

Start Printed Page 26242

Conduct of Alternate Operations at a Plant

Alternate use of premises and equipment for customs purposes.

(a) General. The proprietor may extend or curtail the distilled spirits plant premises or a part of those premises for temporary use by Customs and Border Protection officers for customs purposes. If the proprietor wishes to alternate the use of the premises for customs purposes, that use must be approved by the port director of customs and must be conducted in accordance with applicable customs laws and regulations.

(b) Qualification. Before alternating the plant premises for customs purposes, the proprietor must file and receive approval of the necessary registration, application and bonds as required by this part. The proprietor's application for registration must include the following:

(1) A description of the areas, rooms or buildings, or combination of rooms or buildings that will be alternated;

(2) A diagram of the parts of the plant that the proprietor will use for the alternation; and

(3) The method that that the proprietor will use to separate the alternated premises from any premises not subject to alternation.

(c) Letterhead notice. After the proprietor receives approval to alternate premises for customs purposes, the proprietor must file a letterhead notice with the appropriate TTB officer each time the premises will be alternated. The notice must include the following information:

(1) The name and plant number of the proprietor filing the notice;

(2) The date and hour the alternation will take place;

(3) Identification of any applicable diagrams provided with the registration filed under paragraph (b) of this section, showing the portions of the premises involved in the alternation;

(4) The purpose of the alternation;

(5) If the alternation is for gauging or processing distilled spirits, a statement to that effect; and

(6) An indication of the class of temporary customs warehouse, if applicable.

(d) Proprietor responsibilities. Prior to the start of alternation for customs purposes, the proprietor must remove all spirits from the premises or equipment that will be involved in the alternation. However, upon release by customs, spirits in the process of being transferred to bonded premises under 26 U.S.C. 5232, may remain on the premises.

(e) Exceptions. The qualification requirements in paragraph (b) of this section and the notice requirements in paragraph (c) of this section will not apply where the proprietor solely intends to gauge bulk distilled spirits for transfer from customs custody to TTB bond.

(f) Conveyance of spirits in customs custody. If the proprietor intends to convey spirits in customs custody across the distilled spirits plant premises the proprietor must comply with § 19.60.

(26 U.S.C. 5172, 5178)

Alternation for other purposes.

(a) General. The proprietor may temporarily extend or curtail the distilled spirits plant premises to allow for several other types of alternate uses. Premises may be alternately curtailed or extended to allow bonded premises to be used temporarily as general premises, or to allow general premises to be used as bonded premises. A curtailment or extension of distilled spirits plant premises may also allow for the use of the premises as:

(1) An adjacent bonded wine cellar;

(2) An adjacent taxpaid wine bottling house;

(3) An adjacent brewery; or

(4) Facilities for the manufacturer of eligible flavors.

(b) Qualifying documents. Before alternating the premises for a purpose listed in paragraph (a) of this section, the proprietor must file and receive approval of the necessary registration, application forms and attachments that relate to the proposed alternate use. Depending on the type of alternation involved, the proprietor must file one or more of the following qualification documents:

(1) Registration. For all alternate uses of the distilled spirits plant described in paragraph (a) of this section the proprietor must file a form TTB F 5110.41, Registration of a Distilled Spirits Plant, to cover the proposed alternation of premises.

(2) Diagram. For all alternate uses, the proprietor must provide a special diagram, in duplicate, delineating the premises as they will exist, both during extension and curtailment and clearly depicting all buildings, floors, rooms, areas, equipment that are to be subject to alternation, in their relative operating sequence.

(3) Bond. For all alternate uses, the proprietor must provide evidence of an existing bond, consent of surety, or a new bond to cover the proposed alternation of premises.

(4) Bonded wine cellar or taxpaid wine bottling house. If the proprietor intends to alternate the premises or part of the premises as a bonded wine cellar or taxpaid wine bottling house the proprietor must also file form TTB F 5120.25, Application to Establish and Operate Wine Premises.

(5) Brewery. If the proprietor intends to alternate the premises or part of the premises for a brewery operation the proprietor must file form TTB F 5130.10, Brewer's Notice.

(c) Separation of premises. The proprietor must separate the distilled spirits plant premises from the alternate use premises in accordance with the approved plan of alternation described in the qualifying documents.

(d) Segregation of products. When the proprietor alternates premises, the proprietor must segregate products as follows:

(1) Wine operations.

(i) Prior to alternation from distilled spirits plant premises to wine premises, the proprietor must remove all distilled spirits, denatured spirits, articles, and wine from the distilled spirits plant premises that will be alternated. However, the proprietor may keep spirits on the premises if they are being withdrawn for use in wine production under § 19.419, or for use in the production of nonbeverage wine or wine products under § 19.421. Further, the proprietor may keep wine on the premises if it is to be transferred in bond under § 19.402(b)(2).

(ii) Prior to alternation from wine premises to distilled spirits plant premises, the proprietor must remove all wine and spirits from the wine premises that will be alternated. However, the proprietor may keep wine on the premises if it is being transferred in bond under § 19.402(b)(1). Further, the proprietor may keep spirits on the premises if they are being returned from bonded wine cellar premises to distilled spirits plant bonded premises under § 19.454.

(2) Brewery. Prior to alternation from distilled spirits plant premises to operation of a brewery the proprietor must remove all spirits, denatured spirits, articles and wine from the premises to be alternated to brewery premises. Prior to alternation of brewery premises to distilled spirits plant premises, the proprietor must remove all beer from the premises except beer that is being received for production of distilled spirits as provided in § 19.296.

(3) General premises. Prior to alternation between bonded and general premises, the proprietor must remove all spirits, denatured spirits, articles and wine from the premises to be alternated. However, the proprietor may keep bonded spirits on portions of bonded Start Printed Page 26243premises to be alternated to general premises if the spirits are taxpaid concurrently with the alternation. Also, the proprietor may keep taxpaid spirits on general premises that will be alternated to bonded premises if the spirits are to be immediately dumped and returned to bond under the provisions of subpart Q of this part.

(4) Manufacture of nonbeverage products. Prior to alternation of the distilled spirits plant premises for use in the manufacture of eligible flavors, the proprietor must remove all spirits, denatured spirits, articles and wine from the premises to be alternated. However, the proprietor may keep spirits on portions of the premises to be curtailed if the proprietor pays the tax concurrent with the alternation. Further, the proprietor may keep taxpaid spirits that have not been used in the manufacture of a nonbeverage product on parts of the premises to be included in the extension of the bonded premises if the spirits are to be immediately dumped and returned to bond under the provisions of subpart Q of this part.

(e) Records. The proprietor must prepare the record of alternating premises prescribed by § 19.627 each time that the proprietor alternates premises.

(26 U.S.C. 5172, 5178)

Alternation of distilled spirits plant and volatile fruit-flavor concentrate plant premises.

The proprietor may temporarily extend or curtail the distilled spirits plant premises for alternate use with the premises of a contiguous volatile fruit-flavor concentrate plant. If a proprietor wishes to use all or a portion of the premises alternately as a volatile fruit-flavor concentrate plant or vice-a-versa, the proprietor must comply with the requirements of §§ 18.39 and 18.41 through 18.43 of this title.

(26 U.S.C. 5172, 5178)

Discontinuance of Operations

Notice of discontinuance of operations.

If the proprietor plans to permanently discontinue one or more of the operations listed on the notice of registration filed under subpart D of this part, the proprietor must notify the appropriate TTB officer by filing form TTB F 5110.41, Registration of Distilled Spirits Plant, to show discontinuance of operations. The proprietor must submit the following with form TTB F 5110.41:

(a) The permit covering each discontinued operation;

(b) A written request for cancellation of the permit(s);

(c) A written statement indicating whether or not—

(1) The proprietor has lawfully disposed of all spirits, denatured spirits, articles, wines, liquor bottles, and other pertinent items;

(2) There are any spirits, denatured spirits, wines, or liquor bottles in transit to the premises; and

(3) The proprietor has secured and returned to the appropriate TTB officer for cancellation all approved applications for transfer of spirits and denatured spirits to the premises; and

(d) A monthly operations report, as provided for under § 19.632, for each discontinued operation, with each report marked “Final Report”.

(26 U.S.C. 5172, 5271)

Subpart F—Bonds and Consents of Surety

Bonding Requirements for a DSP

General.

(a) Bond required. Any person who plans to establish and operate a distilled spirits plant must provide TTB with one or more bonds on form TTB F 5110.56, Distilled Spirits Bond. TTB will not approve a registration or allow a person to operate a distilled spirits plant until the applicant has provided the necessary bonds. If a proprietor fails to pay any liability covered by the bond, TTB may seek payment from the proprietor, from the surety (see § 19.153) or from both the proprietor and the surety. The types and penal sums of bonds required will depend upon the type and size of the operations that the proprietor will conduct.

(b) Bond terms and conditions. The terms and conditions of a distilled spirits bond require that the proprietor comply with all provisions of law and regulations relating to activities covered by the bond, and to pay all taxes imposed by 26 U.S.C. Chapter 51, including taxes on unexplained shortages of bottled distilled spirits. The bond will further specify that the proprietor will pay all penalties incurred, or fines imposed, for violations of law and regulations relating to activities covered by the bond. The specific terms of the required bond(s) are stated on form TTB F 5110.56.

(c) Corporations and controlled subsidiaries. For purposes of this subpart, the term “corporation” includes a Limited Liability Company (LLC) in any jurisdiction where the law authorizes such a business organization to operate. Whenever used in this subpart, the term “controlled subsidiary” means a corporation (or LLC) in which more than 50 percent of the voting power is controlled by a parent corporation.

(26 U.S.C. 5173, 5551)

Types of bonds.

(a) Basic Bonds. There are two basic types of bonds: the operations bond, and the withdrawal bond.

(1) Operations bond. An operations bond covers the tax liability for a variety of operations at a distilled spirits plant, along with any penalties incurred and fines imposed for violation of the law and regulations relating to activities covered by the bond.

(2) Withdrawal bond. A withdrawal bond covers the tax liability for tax determined distilled spirits withdrawn from the bonded premises on a tax deferred basis.

(b) Other bonds. In addition to the basic operations and withdrawal bonds, several variations of these bonds are available:

(1) An adjacent wine cellar bond covers operations at a distilled spirits plant and an adjacent bonded wine cellar;

(2) An area bond covers operations at two or more distilled spirits plant and any adjacent bonded wine cellars; and

(3) A unit bond covers both operations and withdrawals at one or more distilled spirits plants and operations at any adjacent bonded wine cellars.

(26 U.S.C. 5173)

Bond guaranteed by a corporate surety.

(a) Corporate surety. A company that issues bonds is called a “corporate surety.” Proprietors must obtain the surety bonds required by this subpart from a corporate surety approved by the Secretary of the Treasury.

(b) How to find an approved surety. The Department of the Treasury publishes a list of approved corporate surety companies in Treasury Department Circular No. 570, “Companies Holding Certificates of Authority as Acceptable Sureties on Federal Bonds and as Acceptable Reinsuring Companies”. Circular 570 is published annually in the Federal Register. The most current edition of the circular is posted at the website of the Financial Management Service, Department of the Treasury at http://www.fms.treas.gov/​c570. Printed copies of Circular 570 are available for purchase from the Government Printing Office.

(31 U.S.C. 9304, 9306)

Start Printed Page 26244
Bond guaranteed by deposit of securities.

(a) General. As an alternative to the corporate surety bond under § 19.153, a person can file a bond that guarantees payment of the liability by pledging one or more acceptable negotiable securities. These securities must have a par value (face amount) equal to or greater than the penal sums of the required bonds. The pledged securities are held in the Federal Reserve Bank in a safekeeping account with TTB as the pledgee. Should the proprietor fail to pay one or more of the guaranteed liabilities, TTB can take action to sell the deposited securities to satisfy the debt. Pledged securities will be released if there are no outstanding liabilities when the bond is terminated. (See § 19.170.)

(b) Acceptable securities. Only public debt obligations of the United States, the principal and interest of which are unconditionally guaranteed by the United States Government, are acceptable for the purpose described in paragraph (a) of this section. The Department of the Treasury and certain other United States Government agencies issue debt instruments that are acceptable as collateral, such as Treasury notes and Treasury bills. Savings bonds, certificates of deposit and letters of credit are not acceptable. A list of securities acceptable as collateral in lieu of surety bonds is available from the Bureau of the Public Debt, Office of the Commissioner, Government Securities Regulations Staff. Current information and guidance from the Bureau of the Public Debt may be found at http://www.publicdebt.treas.gov.

(31 U.S.C. 9301, 9303)

(31 CFR Part 380)

Change of surety bond terms-consent of surety.

In order to change the terms of an approved bond, both the principal and the surety company that guaranteed bond must agree to the change. TTB must also approve the change. All changes to the terms of a bond must be executed on form TTB F 5000.18, Change of Bond (Consent of Surety) by both the principal and the surety with the same formality and proof of authority as required for the original bond. The completed, executed form TTB F 5000.18 must be submitted to the National Revenue Center.

(26 U.S.C. 5173)

Power of attorney for surety.

(a) Requirement for power of attorney. Every bond and every consent of surety filed with TTB in which an agent or officer executed the bond or consent on behalf of the surety must be supported by a power of attorney authorizing the agent or officer to execute the bond or consent of surety. The power of attorney assures TTB that the person who signed the bond on behalf of the surety has the legal authority to obligate the surety.

(b) Form of power of attorney and endorsement. A power of attorney will be prepared on the surety's own form, and must be executed under the surety's corporate seal. If the power of attorney submitted is other than a manually signed original, it must be accompanied by a certification from the surety that the power of attorney is valid.

(c) Additional documentation. The appropriate TTB officer authorized to approve and accept the bond may require additional evidence of the authenticity of signatures and the authority of persons signing on behalf of the surety to execute the bond or consent.

(31 U.S.C. 9304, 9306)

Disapproval of bonds and consents of surety.

(a) Grounds for disapproval. The appropriate TTB officer may disapprove any bond or consent of surety required by this part if the principal or any person having ownership, control or responsibility for actively managing the business has been previously convicted, in a court of competent jurisdiction of:

(1) Any fraudulent noncompliance with any provision of any law of the United States relating to internal revenue or customs taxation of spirits, wines, or beer, or if the offense was compromised by payment of penalties or otherwise, or

(2) Any felony under a law of any State or the District of Columbia, or the United States, prohibiting the manufacture, sale, importation, or transportation of spirits, wine, beer, or other intoxicating liquor.

(b) Appeal. If the appropriate TTB officer disapproves a bond or consent of surety, the person giving the bond may appeal the disapproval to the Administrator, who will hear the appeal. The decision of the Administrator will be final.

(26 U.S.C. 5551)

Requirements for Operations and Withdrawal Bonds

Operations bond.

(a) General. Any person who intends to establish a distilled spirits plant must furnish an operations bond (or a unit bond, see § 19.165) covering distilled spirits operations at such plant on TTB Form 5110.56 with the original application to register the distilled spirits plant.

(b) Approval of bond. The appropriate TTB officer may require a statement, executed under the penalty of perjury, as to whether the principal, or any person owning, controlling, or managing the business has been convicted of, or has compromised any offense listed in § 19.157(a)(1), or has been convicted of any offense listed in § 19.157(a)(2). If the above statement contains an affirmative answer, the applicant must provide an additional detailed statement describing the circumstances surrounding each conviction or compromise. The appropriate TTB officer will decide whether to approve or disapprove the bond.

(26 U.S.C. 5173, 5551)

Operations bond for distilled spirits plant and adjacent bonded wine cellar.

(a) One bond satisfying two requirements. A proprietor who operates a bonded wine cellar that is adjacent to the proprietor's distilled spirits plant, may file a single operations bond to cover the operations of the distilled spirits plant and the bonded wine cellar. A proprietor who files this type of bond satisfies the requirement in 26 U.S.C. 5173 for an operations bond covering the distilled spirits plant and the requirement in 26 U.S.C. 5354 for a bond covering wine and spirits possessed at, and in transit to, the bonded wine cellar. (The proprietor may still have to obtain a supplemental bond for the wine cellar to cover liabilities resulting from deferred payment of tax. See the second sentence of 26 U.S.C. 5354.)

(b) One bond combining terms and coverage of separate bonds. An operations bond filed under paragraph (a) of this section must contain the same terms and conditions that would be in separate bonds for the distilled spirits plant and for the bonded wine cellar. The proprietor may not allocate or divide the penal sum between the distilled spirits plant and the bonded wine cellar. The total amount of the bond must be available to satisfy any liability incurred under the terms of the bond at either facility.

(c) Persons qualified for a single bond. A proprietor may choose to file a single operations bond for a distilled spirits plant and adjacent bonded wine cellar only if:

(1) Such distilled spirits plant is qualified under subpart D of this part for the production of distilled spirits; and

(2) Such wine cellar and distilled spirits plant are operated by the same person (or in the case of a corporation, Start Printed Page 26245by such corporation and its controlled subsidiaries).

(26 U.S.C. 5173, 5351, 5354)

Area operations bond.

(a) Area operations bond covering multiple locations. A person who operates more than one distilled spirits plant within the geographical area serviced by the National Revenue Center, may submit to TTB an area operations bond covering the operations of any two or more such plants and any bonded wine cellars that are adjacent to such plants and which otherwise could be covered by an operations bond. Area operations bonds filed under this section will be in lieu of the operations bond requirements for single distilled spirits plants under §§ 19.161 and 19.166 and must contain the same terms and conditions as those contained in separate bonds filed for single distilled spirits plants. Any person who files an area operations bond may not allocate or divide the penal sum of the area operations bond between the separate locations and the total penal sum of the bond must be available to satisfy liability incurred at any of the covered locations.

(b) Area operations bonds filed by corporations. An area operations bond may only cover distilled spirits plants and adjacent bonded wine cellars that are operated by the same person. For purposes of this section, a corporation and its controlled subsidiaries are considered to be one person. Further, a controlled subsidiary is a corporation in which more than 50 percent of the voting power is controlled by the parent corporation. Consequently, an area operations bond may cover distilled spirits plants and adjacent bonded wine cellars operated by a parent corporation and one or more of its controlled subsidiaries. The name of each corporation that operates a covered facility must appear on the bond as a principal, whether the operating corporation is the parent or a subsidiary. The bond must bear an authorized signature for each operating corporation appearing on the bond.

(26 U.S.C. 5173)

Withdrawal bond.

(a) Requirement for a withdrawal bond. If a person intends to withdraw spirits from a distilled spirits plant upon determination of the taxes due on the spirits but before payment of the tax, the person must provide TTB with a withdrawal bond for the distilled spirits plant. The withdrawal bond must guarantee payment of any taxes due on distilled spirits withdrawn from bonded premises up to the amount of the bond. Such bond will be in addition to the operations bond, and if the distilled spirits are withdrawn under the withdrawal bond, the operations bond will no longer cover liability for payment of the tax on the spirits withdrawn. For purposes of this section, a person includes a corporation, together with all of its controlled subsidiaries, and a controlled subsidiary has the same meaning as in § 19.163(b).

(b) One bond covering multiple plants. A person who operates more than one distilled spirits plant within the geographical area serviced by the National Revenue Center, may submit to TTB a single withdrawal bond that covers withdrawals from all such distilled spirits plants within that geographic area.

(c) Penal sum of bonds—(1) Penal sum of a bond covering a single plant. A person who files a withdrawal bond for a single plant must compute the penal sum of such bond in accordance with § 19.166. If the penal sum of such bond is less than the maximum amount, withdrawals from the plant may not exceed the penal sum.

(2) Penal sum of bond covering multiple plants. A person who files one withdrawal bond to cover two or more distilled spirits plants must compute the required penal sum for each plant individually in accordance with § 19.166. The penal sum of the withdrawal bond must be equal to, or greater than, the total of the minimum amounts required for the individual plants. The bond must show the amount of coverage allocated to each individual plant as well as the total penal sum for all plants. If the portion of the penal sum allocated to a particular plant is less than the maximum amount prescribed in § 19.166 for a single plant, withdrawals from that plant must not exceed the amount of the penal sum allocated to that plant. The allocation of the penal sum notwithstanding, the entire penal sum of the bond must be available to satisfy all liability for tax on withdrawals from any and all of the covered plants.

(26 U.S.C. 5173)

Unit bonds.

(a) Unit bond covering operations and withdrawals. If a person is otherwise required to file bonds for both operations at one or more distilled spirits plants and withdrawals from one or more distilled spirits plants, the person may instead submit a single unit bond that provides all of the guarantees that would otherwise be provided by separate operations and withdrawal bonds. The unit bond may also provide coverage for operations at adjacent bonded wine cellars.

For purposes of this section, a person includes a corporation, together with all of its controlled subsidiaries, and a controlled subsidiary has the same meaning as in § 19.163(b).

(b) Required penal sum— (1) General. A person must determine the penal sum for the unit bond by separately calculating in accordance with § 19.166, and then totaling, the amounts needed to cover operations and withdrawals at each individual plant covered by the bond. The penal sum for the unit bond must not be less than the sum of the minimum penal sums that would be required if each of the plants had its own bond.

(2) Allocation between operations and withdrawals. A unit bond must show separately the amount of coverage provided for operations (including operations at each adjacent bonded wine cellar if applicable) and for withdrawals at each distilled spirits plant covered by the bond.

(3) Tax liability must not exceed allocated penal sum. If the amount of the penal sum allocated to operations at, or withdrawals from, a particular plant is less than the maximum amount prescribed in § 19.166 for a single plant, the tax liability for operations at, or withdrawals from, that plant must not exceed that allocated amount.

(4) Total penal sum available for each plant. Even when the penal sum of a unit bond is allocated among multiple plants, the bond must provide that the total penal amount of the bond will be available to satisfy any liability incurred under the terms and conditions of the bond at any plant covered by the bond.

(26 U.S.C. 5173)

Required penal sums.

A person must determine the penal sums for the various bonds required by this subpart according to the following table: Start Printed Page 26246

(a) Operations bond for a single plant operating as a:Required penal sum represents:The penal sum must be:
not less than—and need not be more than—
(1) DistillerThe amount of tax on spirits produced during a 15-day period.$5,000$100,000
(2) Warehouseman, in generalThe amount of tax on spirits and wines deposited in, stored on, and in transit to, the bonded premises.5,000200,000
(3) Warehouseman limited to storage of spirits in packages to a total of not over 50,000 proof gallonsThe amount of tax on spirits and wines deposited in, stored on, and in transit to, the bonded premises.5,00050,000
(4) Distiller and warehousemanThe amount of tax on spirits produced during a period of 15 days, plus the tax on spirits and wines deposited in, stored on, and in transit to the bonded premises.10,000200,000
(5) Distiller and processorThe amount of tax on spirits produced during a 15-day period, plus the amount of tax on spirits, denatured spirits, articles and wines deposited in, or stored on, and in transit to the bonded premises.10,000200,000
(6) Warehouseman and processor in generalThe amount of tax on spirits, denatured spirits, articles, and wines deposited in, stored on, and in transit to, the bonded premises.10,000250,000
(7) Warehouseman and processor, limited to storage of spirits or denatured spirits in packages to a total of not over 50,000 proof gallons, and processing of spirits or denatured spirits so storedThe amount of tax on spirits, denatured spirits, articles, and wines deposited in, stored on, and in transit to, the bonded premises.10,00050,000
(8) Distiller, warehouseman and processorThe amount of tax on spirits produced during a 15-day period, plus the amount of tax on spirits, denatured spirits, articles and wines deposited in, stored on, and in transit to, the bonded premises.15,000250,000
(9) Distiller with adjacent bonded wine cellarThe amount required for a distiller (see (a) 1. above) plus the amount of tax on wines and wine spirits possessed on, and in transit to, the adjacent wine cellar.6,000150,000
(10) Distiller and warehouseman with adjacent bonded wine cellarThe amount required for a distiller & warehouseman (see (a) 4. above) plus the amount of tax on wines and wine spirits possessed on, and in transit to, the adjacent wine cellar.11,000250,000
(11) Distiller and processor with adjacent bonded wine cellarThe amount required for a distiller & processor (see (a) 5. above) plus the amount of tax on wines and wine spirits possessed on, and in transit to, the adjacent wine cellar.11,000250,000
(12) Distiller, warehouseman and processor with adjacent bonded wine cellarThe amount required for a distiller-warehouseman-processor (see (a) 8. above) plus the amount of tax on wines and wine spirits possessed on, and in transit to, the adjacent wine cellar.16,000300,000
(b) Area operations bond for two or more plants whose combined required penal sums under paragraph (a) of this section:Required penal sum is:But need not be more than:
(1) Do not exceed $300,000100%$300,000
(2) Exceed $300,000 but do not exceed $600,000$300,000 plus 70% of the amount over $300,000$510,000
(3) Exceed $600,000 but do not exceed $1,000,000$510,000 plus 50% of the amount over $600,000$710,000
(4) Exceed $1,000,000 but do not exceed $2,000,000$710,000 plus 35% of the amount over $1,000,000$1,060,000
(5) Exceeds $2,000,000.$1,060,000 plus 25% of the amount over $2,000,000
(c) Withdrawal bond for:Required penal sum represents:The penal sum must be
not less than—and need not be more than—
(1) One distilled spirits plantThe amount of tax which, at any one time, is chargeable against such bond, but has not yet been paid.$1,000$1,000,000
Start Printed Page 26247
(2) Two or more distilled spirits plantsSum of the penal sums for each plant calculated in (c)1 of this section($1,000) x (number of plants)(Number of plants) x $1,000,000
(d) Unit bond for:Required penal sum represents:The penal sum must be:
not less than—and need not be more than—
(1) Operations at one distilled spirits plant (including any adjacent bonded wine cellar), and withdrawals from the bonded premises of the same plantAn amount equal to the sum of the required penal sums of an operations bond and a withdrawal bond for the plant, if such bonds were obtained separately. (See (a) and (c)1 in this table.)$6,000$1,300,000
(2) Operations at two or more distilled spirits plants (including any adjacent bonded wine cellars), and withdrawals from the bonded premises of the same plantsAn amount equal to the sum of the penal sums of an area operations bond and withdrawal bonds needed for all of the covered plants, if such bonds were obtained separately. [Total penal sums of (b) and (c)(2) in this table.]Sum of the minimum penal sums for operations and withdrawal bonds required for each plant covered by the bondSum of the maximum penal sums for area operations bonds and withdrawal bonds required for the plants covered by the unit bond.

(26 U.S.C. 5173)

Increase of bond coverage.

(a) When required. If the penal sum of a bond is less than the maximum amount specified by § 19.166, and liabilities increase to the point where they exceed the bond coverage, the proprietor must increase the amount of the bond to cover the increased liability. The proprietor must increase the bond coverage either by replacing the existing bond with a new, larger bond that covers the entire liability, or by supplementing the existing bond with a separate strengthening bond in accordance with paragraph (b) of this section.

(b) Strengthening bonds. A strengthening bond is a second bond with the same surety as on the original bond which covers the increased liability. A strengthening bond must show both its execution date and its effective date. TTB will not accept a strengthening bond if it contains any term or condition that is a release, or could be interpreted as a release, from liability under any former bond, or that limits the liability of any bond to less than its full penal sum.

(26 U.S.C. 5173)

Superseding bonds.

(a) General. In any of the circumstances outlined in paragraphs (b) through (d) of this section, the proprietor must replace an existing bond with a new bond. A new bond that replaces another bond is called a superseding bond.

(b) Surety company no longer acceptable. The proprietor must file a superseding bond if the surety on the proprietor's current bond becomes insolvent or if the surety is removed from the list of approved sureties in Treasury Circular 570. TTB may also require the filing of a superseding bond if any other contingency affecting the validity or efficiency of the bond arises.

(c) Change of control. An executor, administrator, assignee, receiver, trustee, or other person acting in a fiduciary capacity, continuing or liquidating the business of the principal on a bond, must either provide TTB with a superseding bond, or obtain consent from the surety on each existing bond when assuming control of the business.

(d) Termination of bond by surety. If the surety applies to terminate a bond under § 19.171, and the proprietor wishes to continue the activity covered by the bond, the proprietor must file a superseding bond that becomes effective on or before the termination date of the existing bond. The superseding bond must show both its execution date and its effective date.

(26 U.S.C. 5173, 5175, 5176, 5551)

Effect of failure to furnish a superseding bond.

(a) Operations bond. A person may not operate a distilled spirits plant without an operations bond. If a person does not submit an acceptable superseding operations bond when required to do so under § 19.168, the person must immediately discontinue the activities to which the lapsed bond coverage relates upon lapse of the existing bond coverage.

(b) Withdrawal bond. A person who does not submit an acceptable superseding withdrawal bond when required to do so under § 19.168 may not withdraw distilled spirits from the bonded premises on a deferred basis. Upon lapse of the existing bond coverage the person must pay the tax at the time of withdrawal, except in the case of distilled spirits withdrawn free of tax or withdrawn without payment of tax under 26 U.S.C. 5214 or withdrawn exempt from tax under 26 U.S.C. 7510.

(c) Unit bond. A person who does not provide an acceptable superseding unit bond when required to do so under § 19.168 must immediately discontinue the business or distilled spirits operations to which the lapsed bond coverage relates. Upon lapse of the existing bond coverage the person must also pay the tax at the time of withdrawal, except in the case of distilled spirits withdrawn free of tax or withdrawn without payment of tax under 26 U.S.C. 5214 or withdrawn exempt from tax under 26 U.S.C. 7510.

(26 U.S.C. 5173, 5175, 5176)

Termination of bonds.

Liability under operations bonds, withdrawal bonds, and unit bonds may be terminated for future withdrawals, future production, or future deposits as set forth below:

(a) On application by the surety. A surety may terminate a bond by filing a notice as provided in § 19.171; Start Printed Page 26248

(b) By replacement of the bond. A principal may terminate an existing bond by replacing it with a superseding bond approved by TTB;

(c) By discontinuing withdrawals. A principal may terminate a withdrawal bond by notifying TTB that the principal has stopped making withdrawals covered by the bond, if the bond was filed solely as a withdrawal bond; or

(d) By discontinuing the business. A principal may terminate a bond by notifying TTB that the principal has discontinued business.

(26 U.S.C. 5173)

Surety notice of relief from bond liability.

(a) Notice to principal. A surety on a bond may, at any time, notify the principal in writing that the surety desires to be relieved of liability under the bond.

(b) Notice to TTB. A surety on a bond may, at any time, notify the appropriate TTB officer in writing that the surety desires to be relieved of liability under the bond. The notice must specify the date after which the surety desires to be relieved of liability. In the case of a withdrawal bond, the date specified in the notice must be at least ten days after the notice is received by the appropriate TTB officer. In the case of an operations bond or unit bond, the date specified in the notice must be at least 90 days after the notice is received by the appropriate TTB officer. When a surety files a termination notice with TTB, the surety must include either an acknowledgement from the principal that the principal is aware that the surety is terminating the bond or proof that the surety has served the principal with notice of its intent to terminate the bond.

(c) Effect of notice. The bond coverage will end as of close of business on the date specified in the notice, provided the surety timely filed a proper and complete termination notice, and the surety does not withdraw its termination notice in writing prior to the termination date. The surety will be released from future liability under the bond to the extent set forth in § 19.172.

(26 U.S.C. 5173, 5175, 5176)

Relief of surety from bond liability.

A surety who has provided proper notice under § 19.171 will be relieved from liability under the bond in question as set forth below:

(a) Operations or unit bond. When a superseding bond is submitted, the surety will be relieved of future liability related to production and deposits that take place after the effective date of the superseding bond. However, the surety remains liable for the tax on all distilled spirits or wines produced, or for other liabilities incurred, during the term of the bond. Further, if a superseding bond is not submitted, the surety will remain liable under the bond for all spirits or wines that are on hand or in transit to the bonded premises or bonded wine cellar on the date specified in the notice. The liability of the surety will continue until all such spirits or wines have been lawfully disposed of, or until a new bond has been submitted by the principal covering the spirits or wine.

(b) Withdrawal or unit bonds. The surety will be relieved from liability for withdrawals made after the date specified in the notice, or upon the effective date of a new bond if one is given.

(26 U.S.C. 5173, 5176)

Release of pledged securities.

Securities that are pledged and deposited with TTB under § 19.154 will only be released by TTB in accordance with the provisions of 31 CFR Part 225. The appropriate TTB officer will not release pledged securities prior to termination of the liability under the bond for which they were pledged. When the appropriate TTB officer is satisfied that the pledged securities may be released, the official will set a date or dates on which a part or all of the securities may be released. At any time prior to the release of the securities, the appropriate TTB officer may extend the date of release for any additional length of time deemed necessary.

(31 U.S.C. 9301, 9303)

Subpart G—Construction, Equipment, and Security Requirements

General.

The proprietor of a distilled spirits plant must apply certain construction, equipment, and security standards at the plant. These standards are intended to ensure the protection of untaxed spirits at the plant and to ensure proper measurement and accountability for products on bonded premises. This subpart prescribes those standards.

(26 U.S.C. 5178)

Tank Requirements

Tanks—general requirements.

The proprietor of a distilled spirits plant must ensure that all tanks on the premises used to hold spirits, denatured spirits, or wines are:

(a) Used for the purpose listed on the application and plant registration;

(b) Equipped with accurate means for measuring their contents. If the means for measurement is not a permanent fixture on the tank, the proprietor must equip the tank with a fixed device for measuring the contents. However, tanks having a capacity of less than 101 gallons are not required to have permanent gauge devices;

(c) Accurately calibrated if used for any of the gauges described in this part. Further, if tanks or their gauging devices are moved in any manner subsequent to original calibration, the tanks shall not be used until recalibrated;

(d) Accessible through walkways, landings, and stairs that permit access to all parts of the tank;

(e) Equipped or situated so that they may be locked or secured; and

(f) Constructed to prevent access to the spirits or wines through vents, flame arresters or other safety devices.

(26 U.S.C. 5006, 5204, 5505)

Scale tanks.

(a) Except as otherwise provided in paragraph (b) of this section, if the proprietor uses a tank to determine the distilled spirits tax imposed by 26 U.S.C. 5001, the tank must be mounted on scales and the contents of the tank must be determined by weight. The scale tank also must be equipped with a suitable device so that the volume of the contents can be quickly and accurately determined.

(b) The requirement to mount tanks on scales does not apply to tanks having a capacity of 55 gallons or less. Such tanks may be moved onto an accurately calibrated scale when a tax determination gauge needs to be made.

(26 U.S.C. 5006, 5204, 5505)

Scale tank minimum graduations.

(a) The beams or dials on scale tanks used for tax determination must have minimum graduations not greater than the following:

Quantity to be weighed (pounds)Minimum graduation (pounds)
Not exceeding 2,0001/2
Between 2,000 and 6,0001
Between 6,000 and 20,0002
Between 20,000 and 50,0005
Over 50,00010

(b) For scales having a capacity greater than 2,000 pounds, the minimum quantity which may be entered onto the weighing tank scale for gauging for tax determination will be the greater of:

(1) 1,000 times the minimum graduation of the scale, or Start Printed Page 26249

(2) 5 percent of the total capacity of the weighing tank scale.

(c) The weighing of lesser quantities for determination of tax may be authorized by the appropriate TTB officer where the beam of the scale is calibrated in 1/2 pound or 1 pound graduations and it is found by actual test that the scales are accurate at each graduation.

(d) Lots of spirits weighing 1,000 pounds or less shall be weighed on scales having 1/2 pound graduations.

(26 U.S.C. 5006, 5204, 5505)

Testing scale tanks for accuracy.

(a) A proprietor who uses a scale tank for tax determination must ensure the accuracy of the scale through periodic testing. Testing of the scale must be conducted at least every 6 months and whenever the scale is adjusted or repaired.

(b) A proprietor also must test, at least once a month, the gallonage represented to be in a scale tank against the gallonage indicated by volumetric determination of the contents of the tank. However, if the scale is not used during a month, it is only necessary to verify against the volumetric determination when the scale is next used. The proprietor must make the volumetric determination in accordance part 30 of this chapter. If the variation exceeds .5 percent of the quantity shown in the tank, the proprietor must take appropriate action to verify the accuracy of the scale.

(c) If the appropriate TTB officer determines that a scale may be inaccurate, the proprietor must test the accuracy of the scale.

(26 U.S.C. 5006, 5204, 5505)

Package Scale and Pipeline Requirements

Package scales.

Proprietors must ensure that scales used to weigh packages are tested at least every 6 months and whenever they are adjusted or repaired. However, if a scale is not used during a 6-month period, it is only necessary to test the scale prior to its next use. Scales used to weigh packages that hold 10 wine gallons or less must indicate weight in ounces or hundredths of a pound.

(26 U.S.C. 5204)

Pipelines.

All pipelines, including flexible hoses, that are used to transfer spirits, denatured spirits, articles, and wines must be constructed, arranged, and secured so as to ensure protection of the revenue and permit ready examination. The appropriate TTB officer may approve pipelines that cannot be readily examined if they pose no jeopardy to the revenue.

(26 U.S.C. 5178)

Measuring and Proofing Equipment Requirements

Measuring devices and proofing instruments.

(a) General. A proprietor of a distilled spirits plant must have accurate instruments and equipment at the plant for determining the proof and volume of spirits.

(b) Instruments. The hydrometers and thermometers that a proprietor uses to gauge spirits must show subdivisions or graduations of proof and temperature as specified in part 30 of this chapter. Proprietors must frequently test their hydrometers and thermometers to ensure their accuracy. If an instrument appears to be in error, the proprietor may not use the instrument until it is tested and certified as accurate by the manufacturer or another qualified person.

(c) Meters. A proprietor may use an accurate mass flow meter to measure the volume of bulk spirits. A mass flow meter used for tax determination of bulk spirits must be certified by the manufacturer or other qualified person as accurate within a tolerance of +−0.1%. A mass flow meter used for all other required gauges of bulk spirits must be certified by the manufacturer or other qualified person as accurate within a tolerance of +−0.5%. The proprietor must make corrections for the temperature of the spirits being measured in conjunction with the volumetric measurement of spirits by mass flow meter. The proprietor must also test mass flow meters at least every 6 months to ensure that they are accurate within the required tolerances.

(26 U.S.C. 5204)

Other Plant Requirements

Identification of structures, areas, apparatus, and equipment.

(a) Buildings. The proprietor must mark each building at a distilled spirits plant where spirits, denatured spirits, articles, wine, or distilling or fermenting materials are kept with a distinguishing number or letter.

(b) Tanks. The proprietor must mark each tank or receptacle for spirits, denatured spirits, or wine to show a unique serial number and capacity.

(c) Stills. The proprietor must number and mark to show the use of each still, fermenter, cooker, and yeast tank.

(d) Other major equipment. The proprietor must identify the use of all other major equipment used for processing or containing spirits, denatured spirits, wine, distilling or fermenting material, and all other tanks, unless the intended purpose is readily apparent.

(26 U.S.C. 5178)

Office facilities for TTB use.

(a) When required by the appropriate TTB officer, the proprietor must provide a secure cabinet equipped for locking for use by TTB.

(b) If one or more TTB officers are assigned to a distilled spirits plant to supervise operations on a continuing basis, the proprietor must provide a suitable office at the plant for the exclusive use of the TTB officers in performing their duties. The appropriate TTB officer will determine if the office facilities are suitable.

(26 U.S.C. 5178)

Signs.

The proprietor must place and keep a conspicuous sign on the outside of the place of business showing the name of the proprietor and the business, or businesses, in which engaged.

(26 U.S.C. 5180)

Security.

(a) General. The proprietor of a distilled spirits plant must provide adequate security measures at the plant in order to protect the revenue.

(b) Buildings. The buildings, rooms, and partitions must be constructed of substantial materials. Doors, windows, or any other openings to the building must be secured or fastened during times when distilled spirits plant operations are not being conducted.

(c) Outdoor tanks. Outdoor tanks containing spirits, denatured spirits, or wine must be individually locked or locked within an enclosure when they are not in use.

(d) Indoor tanks. Indoor tanks containing spirits, denatured spirits, or wines, or the rooms or buildings in which such tanks are housed, must be equipped so that they may be secured.

(e) Approved locks. Locks meeting the specifications prescribed in paragraph (f) of this section must be used to secure:

(1) Outdoor tanks used to store spirits, or an enclosure around such tanks;

(2) Indoor tanks used to store spirits, or the door from which access may be gained from the outside to the rooms or buildings in which such tanks are housed; and

(3) Any doors from which access may be gained from the outside to rooms or buildings containing spirits stored in portable bulk containers. Start Printed Page 26250

(f) Specifications for locks. Locks meeting the specifications in this section or other locks that have been approved for use by the appropriate TTB officer are approved locks for the purpose of 26 U.S.C. 5682.

(1) General. The following are the specifications for approved locks:

(i) A corresponding serial number on the lock and on the key, except for master key locking systems;

(ii) A case hardened shackle at least one-fourth inch in diameter, with heel and toe locking;

(iii) A body width of at least 2 inches;

(iv) A captured key feature (the key may not be removed while the shackle is unlocked);

(v) A tumbler with at least 5 pins; and

(vi) A lock and key containing no bitting data.

(2) Other approved locks. If the proprietor wishes to use locks of an unusual design, which do not meet the specifications in paragraph (f)(1) of this section, the proprietor must submit an example or prototype of the lock to the appropriate TTB officer, with a request that the lock be approved for use. The appropriate TTB officer will evaluate the lock and determine whether the lock should be approved for use.

(3) Master key systems. Master key locking systems using approved locks may be used at the option of the proprietor.

(g) Additional security. Whenever the appropriate TTB officer finds that the construction, arrangement, equipment, or protection is inadequate, additional security (such as fences, flood lights, alarm systems, and guard services) must be provided or changes in construction, arrangement, or equipment must be made to the extent necessary to protect the revenue.

(26 U.S.C. 5178, 5202, 5682)

Breaking Government locks.

TTB may assign TTB officers to a distilled spirits plant and utilize controls, such as Government locks, if TTB determines that such measures are necessary to effectively supervise operations at the plant. The proprietor may not remove such Government locks without the authorization of the appropriate TTB officer, except when a person or property is in imminent danger from a disaster or other emergency. If the proprietor must remove Government locks under such circumstances, the proprietor must ensure that security measures are taken to prevent illegal removal of spirits. In addition, the proprietor must notify the appropriate TTB officer as soon as possible of the action taken and within 5 days of removing the locks submit a written report describing the emergency and the action taken.

(26 U.S.C. 5202)

Subpart H—Special (Occupational) Tax

Liability for special (occupational) tax.

(a) General liability for tax. Special tax is an occupational tax imposed by the IRC, and TTB is responsible for collecting this tax. A proprietor of a distilled spirits plant must file a special tax return and pay a special (occupational) tax at the rate specified in § 19.202. The proprietor must pay this tax on or before the date of commencing business as a distilled spirits plant, and thereafter every year on or before July 1. When a proprietor first commences business, the tax liability will be computed from the first day of the month in which the business starts through the following June 30. Thereafter, the tax must be computed for the entire year (July 1 through June 30).

(b) Suspension of tax. During the period from July 1, 2005, through June 30, 2008, the rate of the tax referred to in paragraph (a) of this section is zero. However, the proprietor must still register by filing the special tax return on form TTB F 5630.5 during this suspension period even though the amount of tax due is zero. During the suspension period, as at other times, the special tax return is due on or before the proprietor commences business and on or before July 1 of each year thereafter.

(26 U.S.C. 5081, 5142, 5143)

Special (occupational) tax rates.

During the period from July 1, 2005, through June 30, 2008, the rate of the tax is zero. At all other times, there are two rates of special tax for distilled spirits plants. The rate depends upon the gross receipts of the business. The annual rates are:

If—Then the annual tax rate is—
the taxable-year gross receipts are less than $500,000,$500
the taxable-year gross receipts are $500,000 or more,$1,000

(26 U.S.C. 5081)

Eligibility for the reduced rate.

(a) General. Except during the suspension period described in § 19.201(b) when the tax rate is zero, 26 U.S.C. 5081(b) provides for a reduced tax rate of $500 per year for small proprietors. A proprietor is eligible to pay the reduced rate as a small proprietor if the proprietor's total gross receipts for the income tax year that most recently ended are less than $500,000. All gross receipts must be included, not just the gross receipts of the activity subject to special tax. Further, proprietors of new businesses that have not yet begun a taxable year, as well as proprietors of existing businesses that have not yet ended a taxable year, who commence a new activity subject to special tax, may qualify for the reduced rate in the initial tax year if gross receipts for the business (or the entire controlled group, if the proprietor is a member of a controlled group) were under $500,000 during the income tax year that most recently ended. If the proprietor is a member of a controlled group, the rules under paragraph (b) of this section will apply.

(b) Controlled Group. If the proprietor is a member of a controlled group, the controlled group will be treated as a single taxpayer for the purpose of determining gross receipts under paragraph (a) of this section. A controlled group is defined in subpart D of part 70 of this chapter.

(c) Special rules for gross receipts. For any taxable year shorter than 12 months, the proprietor must project annual gross receipts for a 12 month period. To make this projection, the proprietor must multiply gross receipts for the short period by 12 and divide the result by the number of months in the short period. Gross receipts for any taxable year will be reduced by returns and allowances made during that year under 26 U.S.C. 448(c)(3).

(26 U.S.C. 448, 5061, 5081)

Exemption for alcohol fuel producers.

Some alcohol fuel producers are exempt from special tax. For further information, see subpart X of this part.

(26 U.S.C. 5081, 5181)

Locations subject to tax.

(a) A proprietor must pay special (occupational) tax, or must register during the suspension period described in § 19.201(b), for each place of business at which an occupation subject to special tax is conducted. A “place of business” means the entire office, plant, or area of the business in any one location under the same proprietorship. Passageways, streets, highways, rail crossings, waterways, or partitions dividing the premises are not sufficient separation to require additional special tax, if the premises are otherwise contiguous.

(b) A proprietor does not incur additional special tax liability, and is not required to register during the Start Printed Page 26251suspension period described in § 19.201(b), for the sale of liquor made at a location other than the distilled spirits plant premises described on the notice of registration, Form 5110.41, if the location where such sales are made is the same place of business as described in paragraph (a) of this section.

(26 U.S.C. 5081, 5113, 5142, 5143)

Liability as a wholesale or retail dealer.

(a) General. A proprietor of a distilled spirits plant shall be subject to or exempt from a liquor dealer's special (occupational) tax as provided in part 31 of this chapter.

(b) Exemption for sales by a proprietor of a distilled spirits plant. A proprietor of a distilled spirits plant is not required to pay special tax, or to register during the suspension period described in § 19.201(b), as a wholesale or retail dealer in liquor because of sales at the principal place of business, or at the distilled spirits plant, of liquor that at the time of sale is stored at the distilled spirits plant or which had been removed and stored in a taxpaid storeroom operated in connection with the distilled spirits plant. Each proprietor of a distilled spirits plant may have only one exemption from a dealer's special tax payment or dealer's registration for each distilled spirits plant. The proprietor may designate, in writing to the appropriate TTB officer, that the principal place of business is exempt from dealer's special (occupational) tax or registration; otherwise, the exemption will apply to the distilled spirits plant.

(26 U.S.C. 5113)

Special tax returns.

(a) Form. A proprietor must file TTB F 5630.5, Special Tax Registration and Return, in order to:

(1) Pay special (occupational) tax when the tax is due, or

(2) Register during the period July 1, 2005, through June 30, 2008, when the tax is suspended.

(b) Information for the return or registration. A proprietor must follow the instructions on the Special Tax Registration and Return, TTB F 5630.5 providing all the required information including:

(1) The name as the taxpayer;

(2) The trade name(s) (if any) of the business(es) subject to special tax;

(3) The employer identification number (see § 19.210);

(4) The exact location of the place of business, by name and number of building or street or if these do not exist, by some description in addition to the post office address. In the case of one return for two or more locations, the address shown will be the principal place of business (or principal office, in the case of a corporate taxpayer);

(5) The class(es) of special (occupational) tax to which the proprietor is subject, or to which the registration relates during the suspension period referred to in paragraph (a)(2) of this section; and

(6) Ownership and control information: that is, the name, position, and residence address of every owner of the business and of every other person having power to control the management and policies with respect to the activity subject to special tax. For purposes of this section, an owner includes every partner of a partnership and every person owning 10% or more of the stock of a limited liability company or corporation. However, the ownership and control information required by this paragraph does not need to be stated if the same information has been previously provided to TTB in connection with a permit application, and if the information previously provided is still current.

(26 U.S.C. 6151, 7011)

Multiple locations and multiple tax classes.

A proprietor subject to special (occupational) tax, or required to register during the suspension period referred to in § 19.201(b), for the same period at more than one location or for more than one tax class, must:

(a) Prepare, sign and file one special tax registration and return on TTB F 5630.5;

(b) Include any applicable tax payment, to cover all locations and classes of tax;

(c) Prepare, in duplicate, a list identified with the proprietor's name, address (as shown on Form 5630.5), employer identification number, and period covered by the return. The list shall show, by States, the name, address, and tax class of each location for which special tax is being paid, or for which registration is being made during the suspension period described in § 19.201(b). The original of the list will be filed in accordance with instructions on the return, and the copy shall be retained at the proprietor's principal place of business (or principal office, in the case of a corporate taxpayer) for the period of three years from the last day of the return period.

(26 U.S.C. 6151, 7011)

Signing special tax returns.

(a) Ordinary returns. The proprietor must sign all tax returns. The individual must sign the return of an individual proprietor. A general partner must sign the return for a partnership. An officer of a corporation will sign the return for a corporation. In each case, the person signing the return will designate his or her capacity as “individual owner,” “general partner,” or, in the case of a corporation, the title of the officer.

(b) Fiduciaries. A receiver, trustee, assignee, executor, administrator, or other legal representative who continues the business of a bankrupt, insolvent, deceased, or other person, must indicate the fiduciary capacity in which the person is acting.

(c) Agent or attorney in fact. If a return is signed by an agent or attorney in fact, the signature must be preceded by the name of the principal and followed by the title of the agent or attorney in fact. A return signed by a person as agent will not be accepted unless a power of attorney authorizing the agent to perform the act is filed with the TTB office with which the return is filed.

(d) Perjury statement. Form TTB F 5630.5 must contain or be verified by a written declaration that the return has been executed under the penalties of perjury.

(26 U.S.C. 6061, 6062, 6063, 6064, 6065)

Employer identification number.

(a) Requirement. A proprietor must enter the employer identification number (EIN) assigned to the proprietor by the Internal Revenue Service on the special tax return, including any amended return, filed under this subpart. Failure to enter the assigned EIN on the return may result in a $50.00 penalty for each occurrence as specified in § 70.113 of this chapter.

(b) Application for employer identification number. Each proprietor who files a special tax return, who has not already been assigned an employer identification number, must file IRS Form SS-4 to apply for one. The proprietor will apply for and be assigned only one employer identification number, regardless of the number of places of business for which the proprietor is required to file a special tax return. The proprietor must apply for an employer identification number no later than 7 days after the filing of the taxpayer's first special tax return.

(26 U.S.C. 6109)

Issuance, distribution, and examination of special tax stamps.

(a) Issuance of special tax stamps—(1) General. Except as provided in paragraph (a)(2) of this section, TTB will issue to the proprietor a special tax Start Printed Page 26252stamp upon filing a properly executed TTB F 5630.5, Special Tax Registration and Return, along with any applicable tax. If the return covers multiple locations, TTB will issue one appropriately designated stamp for each location listed on the attachment that § 19.208 requires, but showing, as to name and address, only the name of the proprietor and the address of the proprietor's principal place of business (or principal office in the case of a corporate taxpayer).

(2) Exception for suspension period. During the suspension period described in § 19.201(b), when registration is required but no tax is due, TTB will not issue a special tax stamp.

(b) Distribution of special tax stamps for multiple locations. On receipt of the special tax stamps, the proprietor will verify that there is one stamp for each location listed on the attachment to form TTB F 5630.5. The proprietor will designate one stamp for each location and will type on each stamp the address of the business conducted at the location for which that stamp is designated. The taxpayer will then forward each stamp to the place of business designated on the stamp.

(c) Examination of special tax stamps. The proprietor will keep all stamps denoting payment of special tax available at the location for which designated for inspection by appropriate TTB officers during business hours.

(26 U.S.C. 5146, 6806)

Change in name.

If there is a change in the corporate or firm name, or in the trade name, as shown on Form 5630.5, the proprietor will file an amended special tax return as soon as practicable after the change, covering the new corporate or firm name, or trade name. No new special tax is required to be paid. The proprietor will attach the special tax stamp for endorsement of the change in name except if the change occurs during the suspension period described in § 19.201(b).

(26 U.S.C. 5143, 7011)

Change in proprietorship.

(a) General. Except as provided in paragraph (b) of this section, if there is a change in the proprietorship of a distilled spirits plant, the successor must file a new special tax return, pay a new special tax, and obtain the required special tax stamps. However, if the change in proprietorship occurs during the suspension period described in § 19.201(b) when no tax is due and no stamp is issued, the successor is only required to file a new special tax return.

(b) Exception. Persons having the right of succession provided for in paragraph (c) of this section may carry on the business for the remainder of the period for which the special tax was paid (or for which registration was made during the suspension period described in § 19.201(b)), without paying a new special tax, if within 30 days after the date on which the successor begins to carry on the business, the successor files a special tax return on form TTB F 5630.5, which shows the basis of succession.

(c) Right of succession. Under the conditions listed in paragraph (b) of this section, the right of succession will pass to certain persons as follows:

In the case of:The following person may succeed to the tax stamp:
Death of the taxpayerThe widowed spouse or child, or executor, administrator, or other legal representative of the taxpayer.
Succession of spouseA husband or wife succeeding to the business of a living spouse.
InsolvencyA receiver or trustee in bankruptcy, or an assignee for benefit of creditors.
Withdrawal from partnershipThe partner or partners remaining after death or withdrawal of a member.

(d) Failure to register. Except during the suspension period described in § 19.201(b), a person who is a successor to a business for which the special tax has been paid and who fails to register the succession is liable for the special tax computed from the first day of the calendar month in which the successor began to carry on the business. During the suspension period, a failure to register the succession may result in a penalty under 26 U.S.C. 5603(b).

(26 U.S.C. 5143, 7011)

Change in location.

(a) Except as provided in paragraph (b) of this section, if there is a change in location of a taxable place of business, the proprietor will, within 30 days after the change, file an amended special tax return covering the new location. The proprietor will attach the special tax stamp or stamps, for endorsement of the change in location. No new special tax must be paid. However, if the proprietor does not file the amended return within 30 days, the proprietor must file a new special tax return, pay a new special tax, and obtain a new special tax stamp.

(b) If the change in location occurs during the suspension period described in § 19.201(b) when no tax is due and no special tax stamp is issued, the requirements of paragraph (a) of this section still apply, except with regard to attachment of a special tax stamp and payment of a new special tax. During the suspension period, a failure to comply with paragraph (a) of this section may result in a penalty under 26 U.S.C. 5603(b).

(26 U.S.C. 5143, 7011)

Subpart I—Distilled Spirits Taxes

Scope.

This subpart covers the taxation of distilled spirits and the procedures for payment of taxes by proprietors of distilled spirits plants. Issues covered in this subpart include: tax rates, liability for tax, tax determination, return periods, filing of tax returns, forms of payment, electronic fund transfers, and credits under 26 U.S.C. 5010.

(26 U.S.C. 5001)

Basic Provisions of Tax Law Affecting Spirits

Basic tax law provisions.

(a) Distilled spirits tax. 26 U.S.C. 5001 and 7652 impose a tax on all distilled spirits produced in, or imported into or brought into, the United States at the rate prescribed in section 5001 on each proof gallon and a proportionate tax at a like rate on all fractional parts of a proof gallon. For the current rate of tax see 26 U.S.C. 5001.

(b) Products containing distilled spirits. All products of distillation, by whatever name known, which contain distilled spirits, on which the tax imposed by law has not been paid, and any alcoholic ingredient added to such products, are considered and taxed as distilled spirits.

(c) Wines with high alcohol content. Wines containing more than 24 percent of alcohol by volume are taxed as distilled spirits.

(d) Attachment of the tax. Under 26 U.S.C. 5001(b), the tax attaches to distilled spirits as soon as the substance comes into existence as such, whether it be subsequently separated as pure or impure spirits, or be immediately, or at any subsequent time, transferred into any other substance, either in the process of original production, or by any subsequent process.

(e) Alcohol tax is a lien on spirits. Under 26 U.S.C. 5004, the tax becomes a first lien on the distilled spirits from the time the spirits come into existence as such. The conditions under which the first lien terminates are described in 26 U.S.C. 5004.

(f) Tax credit for eligible wines and eligible flavors. Under 26 U.S.C. 5010, a Start Printed Page 26253credit against the tax imposed on distilled spirits by 26 U.S.C. 5001 or 7652 on each proof gallon of alcohol derived from eligible wine, or from eligible flavors which do not exceed 21/2% of the finished product on a proof gallon basis is allowed at the time the tax is payable as if it constituted a reduction in the rate of tax.

(g) Effective tax rates. Where credit against the tax is desired, the proprietor liable for the tax must establish an effective tax rate in accordance with § 19.246. The effective tax rate established will be applied to each withdrawal or other taxable disposition of the distilled spirits.

(26 U.S.C. 5001, 5004, 5010, 7652)

Persons liable for tax.

(a) Distilling. Under 26 U.S.C. 5005, the distiller of spirits is liable for the tax and each proprietor or possessor of, and person in any manner interested in the use of, any still, distilling apparatus, or distillery, shall be jointly and severally liable for the tax on distilled spirits produced. However, a person, not an officer or director of a corporate proprietor, owning or having the right of control of not more than 10 percent of any class of stock of that proprietor, is not liable by reason of the stock ownership or control. Persons transferring spirits in bond are relieved of tax liability if:

(1) The proprietors of transferring and receiving distilled spirits plant premises are independent of each other and neither has a proprietary interest, directly or indirectly, in the business of the other, and

(2) No person liable for the tax on transferred spirits retains any interest in the spirits.

(b) Storage on bonded premises. Under 26 U.S.C. 5005(c) each person operating bonded premises will be liable for the tax on all spirits while the spirits are stored on the premises, and on all spirits which are in transit to the premises from the time of removal from the transferor's bonded premises, pursuant to an approved application. Liability for the tax continues until the spirits are transferred or withdrawn from bonded premises as authorized by law, or until the liability for tax is relieved under the provisions of 26 U.S.C. 5008(a). Claims for relief from liability for spirits lost are covered in subpart J of this part. Voluntary destruction of spirits in bond is covered in subpart Q of this part.

(c) Withdrawals without payment of tax. Under 26 U.S.C. 5005(e), any person who withdraws spirits from the bonded premises of a plant without payment of tax, as provided in 26 U.S.C. 5214, will be liable for the tax on the spirits from the time of withdrawal. The person will be relieved of any liability at the time the spirits are exported, deposited in a foreign-trade zone, used in production of wine, deposited in a customs bonded warehouse, laden as supplies upon or used in the maintenance or repair of certain vessels or aircraft, or used for certain research, development or testing, as provided by law.

(d) Withdrawals free of tax. Persons liable for tax under paragraph (a) of this section, are relieved of the liability on spirits withdrawn from bonded premises free of tax under this part, at the time the spirits are withdrawn.

(e) Withdrawn from customs custody without payment of tax. Under 26 U.S.C. 5232(a) when imported distilled spirits in bulk containers are withdrawn from customs custody and transferred to the bonded premises of a distilled spirits plant without payment of the tax imposed on imported distilled spirits by 26 U.S.C. 5001, the person operating the bonded premises of the distilled spirits plant to which spirits are transferred will become liable for the tax on the spirits upon their release from customs custody, and the importer will thereupon be relieved of liability for the tax.

(26 U.S.C. 5005, 5066, 5232)

Requirements for Gauging and Tax Determination

Requirement to gauge and tax determine spirits.

Before withdrawing distilled spirits from bond, the proprietor must gauge the spirits and determine the tax that is due on the spirits. This requirement applies to all spirits on which the tax will be either prepaid or deferred.

(26 U.S.C. 5006, 5204, 5213)

Gauges for tax determination.

There are several acceptable methods that a proprietor may use when gauging spirits for tax determination.

(a) Cases. If spirits are withdrawn from the bonded premises in cases, the proprietor must gauge the spirits based on the contents of the cases. The proprietor will determine the number of proof gallons of spirits in cases as provided in part 30 of this chapter. The proprietor must convert metric units of measure to U.S. units according to § 19.579.

(b) Packages. If spirits are withdrawn from the bonded premises in packages on the basis of an individual package gauge, each package must be gauged unless the tax is to be determined on the production or filling gauge. When gauging the packages, the proprietor must prepare a package gauge record as specified in § 19.619 and attach it to the record of tax determination that is required by § 19.611.

(c) Tanks. The proprietor must use weight, or an accurate mass flow meter and proof as prescribed in §§ 19.284 and 19.285, to gauge bulk spirits in tanks that are to be withdrawn on determination of tax. The proprietor must record the elements of the gauge on the record of tax determination. As an alternative, the proprietor may record gauge elements on a separate gauge record, and attach the gauge record to the record of tax determination.

(26 U.S.C. 5204, 5213)

Determination of the tax.

After gauging, the proprietor must determine the tax on the spirits to be removed from the bonded premises. The proprietor must use the tax rate prescribed in 26 U.S.C. 5001 to calculate the tax, unless the product is eligible for a reduced effective tax rate as provided in 26 U.S.C. 5010. If the product is eligible for a reduced effective tax rate, the proprietor may use that rate to determine the tax. The proprietor must record the results of each tax determination in a record of tax determination as required by § 19.611.

(26 U.S.C. 5213)

Rules for Deferred Payment and Prepayment of Taxes

Deferred payment and prepayment of taxes.

There are two basic methods of paying the tax on distilled spirits withdrawn from bonded premises: deferred payment and prepayment.

(a) Deferred payment. Under the deferred payment system, the proprietor may withdraw spirits from bond after tax determination but before payment of tax. The excise tax paid is based on the amount of spirits removed from bond during each return period. In order to pay taxes under the deferral system, the proprietor must file a withdrawal bond or unit bond. For detailed information regarding return periods and filing requirements under the deferred system see §§ 19.234, 19.235 and 19.236.

(b) Prepayment. Under the prepayment system, the proprietor must pay the distilled spirits tax after tax determination but before withdrawal of the spirits from bonded premises. See § 19.230 for conditions that require prepayment of taxes.

(26 U.S.C. 5061)

Start Printed Page 26254
Conditions requiring prepayment of taxes.

Under certain conditions, the proprietor must prepay the distilled spirits tax on form TTB F 5000.24, Excise Tax Return, before removing spirits from the bonded premises. Those conditions are:

(a) When the proprietor has not given TTB a withdrawal bond or a unit bond;

(b) When the proprietor has posted a withdrawal or a unit bond, but defaults on any payment of tax under this section, and the tax payment remains in default. The proprietor must continue to prepay the tax until the appropriate TTB officer decides that allowing them to make deferred tax payments again will not jeopardize the revenue;

(c) When the proprietor receives a notice from the appropriate TTB officer that the tax must be prepaid. Such notice may be issued to the proprietor if—

(1) The proprietor fails to maintain records required by this part to substantiate the correctness of his tax returns; or

(2) The proprietor fails to comply with any other provision of this part; or

(d) When the proprietor's withdrawal bond, or the withdrawal coverage under their unit bond, is for less than the maximum penal sum. The proprietor must prepay the tax to the extent that a withdrawal would cause the outstanding tax liability to exceed the limits of coverage under the bond. See § 19.231 if the bond is for less than the maximum penal sum.

(26 U.S.C. 5213, 5555)

Accounting for bond coverage.

When a proprietor furnishes a withdrawal bond or a unit bond to cover the tax on spirits withdrawn on determination of tax, and such bond is in less than the maximum penal sum, the proprietor must maintain an account for the bond to ensure that outstanding tax liabilities do not exceed the penal sum of the bond. The account must charge the bond for the amount of liability incurred on each withdrawal on determination of tax and, credit the bond for each payment of tax made with a return and for authorized credits taken on a return. If the balance of the bond account reaches zero, the proprietor may no longer defer tax payments for taxable withdrawals. Where the bond is for less than the maximum penal sum and has been allocated among two or more plants, the proprietor must maintain an account at each plant for that part of the penal sum allocated to each plant.

(26 U.S.C. 5173, 5201)

Requirements for Filing Tax Returns

Filing prepayment returns.

When the proprietor is required to prepay the tax prior to withdrawal of spirits from the bonded premises, he must prepay the tax with a return on form TTB F 5000.24, Excise Tax Return, and include the remittance with the return. The proprietor may prepay tax for one or more withdrawals with a single prepayment return on form TTB F 5000.24. The proprietor will note the serial number of the form TTB F 5000.24, and the date and time of the prepayment on the individual record of tax determination. The proprietor may not remove spirits from the bonded premises until the tax has been paid.

(26 U.S.C. 5061)

Filing deferred payment returns.

A proprietor must pay the tax on spirits withdrawn from bond for deferred payment of tax by filing a return on form TTB F 5000.24, Excise Tax Return. The proprietor must execute and file form TTB F 5000.24, for each return period, even when no tax is due for a particular return period. The proprietor of each bonded premises must pay the full amount of distilled spirits tax determined for all spirits released for withdrawal from the bonded premises on determination of tax during the period covered by the return (except spirits on which tax has been prepaid).

(26 U.S.C. 5061)

Deferred payment return periods—quarterly and semimonthly.

(a) Two types of return periods. The IRC provides for two different return periods for those taxpayers who pay their taxes on a deferred basis: quarterly and semimonthly. Small taxpayers who meet certain criteria are eligible to use quarterly return periods and pay their taxes on a quarterly basis. Larger taxpayers must use semimonthly return periods and pay their taxes on a semimonthly basis.

(b) Quarterly return period. Effective January 1, 2006, a taxpayer who reasonably expects to be liable for not more than $50,000 in taxes with respect to distilled spirits imposed by 26 U.S.C. 5001 and 7652 for the current calendar year, and who was liable for not more than $50,000 in such taxes in the preceding calendar year, may choose to use a quarterly return period. However, the taxpayer may not use the quarterly return period procedure for any portion of the calendar year following the first date on which the aggregate amount of tax due from the taxpayer during the calendar year exceeds $50,000, and any tax which has not been paid on that date will be due on the 14th day after the last day of the semimonthly period in which that date occurs.

(c) Semimonthly return period. Except in the case of a taxpayer who qualifies for, and chooses to use, quarterly return periods as provided in paragraph (b) of this section, all other taxpayers must use semimonthly return periods for deferred payment of tax. The semimonthly return periods will run from the 1st day through the 15th day of each month, and from the 16th day through the last day of each month, except as otherwise provided in § 19.277.

(d) Definitions. For purposes of this section, the following terms have the meanings indicated:

Reasonably expects. When used with reference to a taxpayer, reasonably expects means the taxpayer was not liable for more than $50,000 in taxes the previous year and there is no other existing or anticipated circumstance known to the taxpayer (such as an increase in production capacity) that would cause the taxpayer's liability to increase beyond that limit.

Taxpayer. A taxpayer is a person who is liable for excise tax imposed with respect to distilled spirits by 26 U.S.C. 5001 and 7652 under the same Employer Identification Number as defined in 26 CFR 301.7701-12.

(26 U.S.C. 5061)

Due dates for returns.

(a) Semimonthly returns. Except when payment is pursuant to a quarterly return as provided in paragraph (b) of this section, where the proprietor of bonded premises has withdrawn spirits from such premises on determination and before payment of tax, the proprietor must file a semi-monthly tax return covering such spirits on form TTB F 5000.24, Excise Tax Return, and remittance, as required by §§ 19.238, 19.239 or § 19.240, not later than the 14th day after the last day of the return period, except for returns filed for September as provided in § 19.237. If the due date falls on a Saturday, Sunday or legal holiday, the return and payment are due on the immediately preceding day that is not a Saturday, Sunday or legal holiday, except as provided in § 19.237(c).

(b) Quarterly returns. Where the proprietor of bonded promises has withdrawn spirits from such premises on determination and before payment of tax, and the proprietor uses quarterly return periods as provided in § 19.235(b), the proprietor must file a quarterly return covering such spirits on form TTB F 5000.24, and remittance, as Start Printed Page 26255required by §§ 19.238, 19.239 or § 19.240, not later than the 14th day after the last day of the quarterly return period. If the due date falls on a Saturday, Sunday, or legal holiday, the return and remittance will be due on the immediately preceding day which is not a Saturday, Sunday, or legal holiday.

(26 U.S.C. 5061)

Special rule for semimonthly filers for the month of September.

(a) Returns required for September. If the proprietor is required to file semimonthly returns as provided in § 19.235(c), there are three return periods during the month of September. The first semimonthly return period is from the first day through the fifteenth day of the month and the return with remittance is due by the 29th of September. The second semimonthly return period for the month of September is divided into two payment periods. The exact dates of these periods depends upon whether the proprietor remits tax payments by electronic fund transfer (EFT).

(1) Taxpayments by EFT. If the proprietor remits tax payments by EFT, the two payment periods for the second half of September are from the 16th through the 26th, and from the 27th through the 30th. The return on form TTB F 5000.24 and remittance for the period September 16-26 is due on or before September 29. The return on form TTB F 5000.24 and remittance for the period September 27-30 is due no later than October 14.

(2) Taxpayment other than by EFT. If the proprietor is not required to pay the distilled spirits tax by EFT, the two payment periods for the second half of September are from the 16th through the 25th and from the 26th through the 30th. The return on form TTB F 5000.24 and remittance for the period September 16-25 is due on or before September 28. The return on Form 5000.24 and remittance for the period September 26-30 is due no later than October 14.

(b) Amount of payment: Safe harbor rule— (1) EFT Taxpayers. The proprietor satisfies the requirements of paragraph (a)(1) of this section if by September 29 the amount paid is at least 11/15ths (73.3 percent) of the tax liability incurred in the semimonthly return period for September 1-15, and the proprietor also pays any underpayment of tax resulting from the use of the safe harbor rule on or before October 14.

(2) Other than EFT taxpayers. The proprietor satisfies the requirements of paragraph (a)(2) of this section if the amount paid by September 28 is at least 2/3rds (66.7 percent) of the tax liability incurred in the semimonthly return period for September 1-15, and the proprietor also pays any underpayment of tax resulting from the use of the safe harbor rule on or before October 14.

(c) Last day for payment. If the required tax payment due date for the return period September 16-25 (non-EFT taxpayers) or September 16-26 (EFT taxpayers), falls on a Saturday or legal holiday, the proprietor's return and remittance are due on the immediately preceding day. If the required tax payment due date falls on a Sunday, the proprietor's return and payment are due on the immediately following day.

(d) Example. Payment of tax for the month of September.

(1) Facts. X, a proprietor required to pay taxes by electronic fund transfer, incurred tax liability in the amount of $30,000 for the first semimonthly period of September. For the period September 16-26, X incurred tax liability in the amount of $45,000, and for the period September 27-30, X incurred tax liability in the amount of $2,000.

(2) Payment requirement. X's payment of tax in the amount of $30,000 for the first semimonthly period of September is due no later than September 29. X's payment of tax for the period September 16-26 is also due no later than September 29. X may use the safe harbor rule to determine the amount of payment due for the period of September 16-26. Under the safe harbor rule, X's payment of tax must equal $22,000.00, 11/15ths of the tax liability incurred during the first semimonthly period of September. Additionally, X's payment of tax in the amount of $2,000 for the period September 27-30 must be paid no later than October 14. X must also pay the underpayment of tax, $23,000.00, for the period September 16-26, no later than October 14.

(26 U.S.C. 5061)

Payment by mail.

The proprietor must file each return on form TTB F 5000.24 in accordance with the instructions printed on the form. If the proprietor submits the return by U.S. mail, the official postmark of the U.S. Postal Service stamped on the cover in which the return is mailed will be considered to be the date of delivery of the remittance. If the postmark on the cover is illegible, the proprietor will bear the burden of proving when the postmark was made. If the proprietor sends the return with or without remittance by registered mail or certified mail, the date of registry, or the date of the postmark on the sender's postal receipt for certified mail, will be treated as the date of delivery of the return and also of the remittance, if included.

(26 U.S.C. 6302)

Form of payment.

(a) General. The proprietor must pay the tax due on spirits when filing a return on form TTB F 5000.24, Excise Tax Return. The remittance for the tax must accompany the return and may be in any form that is authorized by § 70.61 of this chapter and acceptable to the appropriate TTB officer. Exception: This does not apply to payments that must be made by electronic fund transfer (EFT). For EFT payments see § 19.240.

(b) Consequences of default. If a check or money order tendered in payment of taxes is not paid on presentment, or where the taxpayer is otherwise in default in payment, then any remittance made during the period of default must be either in cash or by an acceptable certified instrument. The proprietor must continue to pay in cash or by certified instrument as long as the proprietor remains in default, and until the appropriate TTB officer finds that accepting a check will not jeopardize the revenue.

(c) Certified instruments. Acceptable certified instruments include certified checks, cashier's checks or treasurer's checks drawn on any bank or trust company incorporated under the laws of the United States, or under the laws of any State, Territory or possession of the United States, or a money order, as provided in § 70.61 of this chapter.

(d) Payment of taxes. The proprietor must make checks or money orders payable to “Alcohol and Tobacco Tax and Trade Bureau”.

(26 U.S.C. 5061, 6311)

Payment of tax by electronic fund transfer.

(a) General—(1) Criteria requiring ETF payment. Under certain conditions, a proprietor may not make payments by cash, check, or money order. Instead, the proprietor must use the services of a commercial bank to pay tax on distilled spirits tax by electronic fund transfer (EFT). Payments must be made by EFT in the current calendar year if the proprietor, as a taxpayer, was liable for five million dollars or more in taxes on distilled spirits during the prior calendar year. For the purpose of determining whether the proprietor is subject to this requirement, the proprietor must use the total amount of tax liability on distilled spirits incurred under this part and parts 26 and 27 of this chapter (gross tax liability). Gross tax liability includes the distilled spirits tax on all taxable withdrawals of spirits, taxable importations of spirits, as well Start Printed Page 26256as tax on spirits brought into the United States from Puerto Rico and the Virgin Islands during the calendar year. This figure includes taxes incurred at any and all premises at which the proprietor conducts regulated activities. The proprietor may not net out or adjust for any drawback, credits or refunds of tax that are allowed. Overpayments made in excess of actual tax liability will not be included in the gross tax liability figure.

(2) Controlled group. If the taxpayer is a member of a controlled group, the controlled group is treated as a single taxpayer when calculating liability of five million dollars or more in distilled spirits taxes during the prior calendar year. A controlled group is a related group of taxpayers and is defined in subpart D of part 70 of this chapter.

(3) Separate return and payment for each DSP. When the proprietor makes payments by EFT, the proprietor must file a separate return, form TTB F 5000.24 and make a separate EFT payment for each DSP from which spirits are withdrawn upon determination of tax.

(b) Requirements—(1) Notice to TTB. If the proprietor's gross tax liability is five million dollars or more in one calendar year, the proprietor must notify the appropriate TTB officer of this fact not later than January 10 of the following year. The proprietor must use the total amount of tax liability incurred under this part and parts 26 and 27 of this chapter to determine whether he must make this notification. Exception: this notice requirement does not apply if the proprietor already pays tax on distilled spirits by EFT. The notice shall be an agreement to make payments by EFT.

(2) Separate EFT for each return. For each return filed in accordance with this part, the proprietor will direct the bank to make an EFT to the Treasury Account for the amount of the tax reported due on the return. The proprietor must give instructions to the bank early enough for the EFT to be made to the Treasury Account by no later than close of business on the last day for filing the return as prescribed in § 19.236 or § 19.237, as appropriate.

(3) Discontinuing EFT payments. If the proprietor pays tax by EFT and has a gross tax liability of less than five million dollars in distilled spirits taxes during a calendar year, combining tax liabilities incurred under this part and parts 26 and 27 of this chapter, payment by EFT will be optional in the following year. The proprietor may continue to remit tax payment by EFT as provided in this section, or the proprietor may remit taxpayment using any acceptable method as set forth in § 19.239. If the proprietor decides to stop paying tax by EFT, the proprietor must give the appropriate TTB officer written notice of that decision. The proprietor must attach a written notice to the first return on form TTB F 5000.24 filed using a method of payment other than EFT. Such notice must state that tax is not due by EFT because the proprietor's tax liability during the preceding calendar year was less than five million dollars. The proprietor must further state that future tax payments will be filed with the returns on form TTB F 5000.24.

(c) Remittance—(1) Identifying EFT payments. When the proprietor completes the return on form TTB F 5000.24, the proprietor must indicate on the form that the tax was paid by EFT. The proprietor must file the completed form TTB F 5000.24 with TTB as directed by the instructions on the form.

(2) Credit for payment. TTB will credit the proprietor as having made a tax payment when the Treasury Account receives the EFT. TTB considers the EFT to be received by the Treasury Account when the EFT is paid to a Federal Reserve Bank.

(3) Record of payment. When a proprietor directs a bank to make an EFT as required by paragraph (b)(2) of this section, any transfer data record furnished to the proprietor as part of normal banking procedures will serve as the record of payment. The proprietor will retain this document as part of the required records.

(d) Failure to make a taxpayment by EFT. The proprietor will be subject to a penalty imposed by 26 U.S.C. 5684, 6651, or 6656 for failure to make a required EFT tax payment before close of business on the last day for filing.

(e) Procedure. Upon receipt of a notice filed pursuant to paragraph (b)(1) of this section, the appropriate TTB officer will provide the proprietor with a copy of the TTB Procedure entitled “Payment of Tax by Electronic Fund Transfer”. This publication outlines the procedure that the proprietor must follow when preparing returns and payments by EFT as required by this part. Customs and Border Protection (CBP) will provide instructions for submitting the EFT payments that must be made to CBP.

(26 U.S.C. 5061, 6302)

Requirements for Employer Identification Numbers

Employer identification number.

The proprietor must enter the employer identification number (EIN) assigned to him by the Internal Revenue Service on each form TTB F 5000.24, Excise Tax Return, filed with TTB. Failure to enter the assigned EIN on form TTB F 5000.24, may result in a $50.00 penalty for each occurrence as specified in § 70.113 of this chapter.

(26 U.S.C. 6109, 6723)

Application for employer identification number.

(a) Use Form SS-4. The proprietor must obtain an employer identification number (EIN) by filing an application with the Internal Revenue Service (IRS) on Form SS-4. Form SS-4 is available from the local IRS Center, from the IRS District Director, the IRS Web site at http://www.irs.gov or from TTB's National Revenue Center. The proprietor may file this form with IRS by mail, telephone, or fax by following the instructions on the form.

(b) Time limit. If the proprietor has not already received, or applied for, an EIN at the time that the first return on form TTB F 5000.24, Excise Tax Return, is filed, the proprietor must file such application for an EIN not later than seven days from the date of filing the form TTB F 5000.24.

(c) One EIN only. Each proprietor must obtain and use only one EIN, regardless of the number of places of business for which the proprietor is required to file a tax return under this subpart.

(26 U.S.C. 6109)

Effective Tax Rates

Tax credits under 26 U.S.C. 5010.

(a) The distilled spirits tax. Sections 5001 and 7652 of the IRC impose a tax on all distilled spirits produced in, or imported into, or brought into the United States at the rate prescribed in section 5001 of the IRC.

(b) Tax credits. Section 5010 of the IRC provides a credit for the wine and flavors content in distilled spirits products. These credits effectively reduce the rate of excise tax paid on distilled spirits products that contain eligible wines and eligible flavors. As a result, the alcohol derived from eligible wine is taxed at the rates specified for wine in 26 U.S.C. 5041, and the alcohol derived from eligible flavors is not taxed to the extent that it does not exceed 21/2 percent of the alcohol in the product. This results in an effective tax rate on the distilled spirits product that is lower than the rate prescribed in 26 U.S.C. 5001.

(c) Eligible wine and eligible flavor. The credit for the wine and flavor content of a distilled spirits product is allowable only if the wine or flavor contained in the product is an “eligible wine” or an “eligible flavor”. To determine whether a wine or flavor is Start Printed Page 26257eligible, refer to the definitions in § 19.1, and 26 U.S.C. 5010.

(d) Application of effective tax rates. Section 19.246 describes how the proprietor should compute the effective tax rate for each distilled spirits product containing eligible wine or eligible flavor. Sections 19.247 through 19.250 set forth several different methods that the proprietor may use in applying the effective tax rates to taxable removals of products from the proprietor's bonded premises.

(26 U.S.C. 5010)

Computing the effective tax rate for a product.

(a) How to compute effective tax rates. In order to determine the effective tax rate for a distilled spirits product containing eligible wine or eligible flavor, the proprietor must first determine the total excise taxes due on the product from all sources including distilled spirits, eligible wine, and alcohol from eligible flavors in excess of 2 1/2 percent of the total proof gallons in the product. Then, the proprietor must determine the total number of proof gallons of alcohol in the product regardless of the source. By dividing the total tax (numerator) by the total number of proof gallons (denominator) the proprietor will arrive at the effective tax rate for the product in dollars per proof gallon. The proprietor will compute the effective tax rate according to the following formula:

(1) Numerator. The numerator will be the sum of:

(i) The proof gallons of all distilled spirits used in the product (exclusive of distilled spirits derived from eligible flavors), multiplied by the tax rate prescribed by 26 U.S.C. 5001;

(ii) The wine gallons of each eligible wine used in the product, multiplied by the tax rate prescribed by 26 U.S.C. 5041(b)(1), (2), or (3), that would be imposed on the wine but for its removal to bonded premises. Three different tax classes of wine are eligible for the tax credit. The proprietor will have to repeat this step for each different tax class of eligible wine used; and

(iii) The proof gallons of all distilled spirits derived from eligible flavors used in the product, multiplied by the tax rate prescribed by 26 U.S.C. 5001, but only to the extent that such distilled spirits exceed 21/2 percent of the denominator prescribed in paragraph (a)(2) of this section.

(2) Denominator. The denominator will be the sum of:

(i) The proof gallons of all distilled spirits used in the product, including distilled spirits derived from eligible flavors; and

(ii) The wine gallons of each eligible wine used in the product, multiplied by twice the percentage of alcohol by volume of each, divided by 100.

(b) Rounding numbers—(1) Proof gallons. When determining the effective tax rate, the proprietor must express quantities of distilled spirits, eligible wine, and eligible flavors to the nearest tenth of a proof gallon.

(2) Tax rates. The proprietor may round the effective tax rate to as many decimal places as the proprietor deems appropriate, provided that the rate is expressed no less exactly than the rate rounded to the nearest whole cent. The proprietor must be consistent and round the effective tax rates for all products to the same number of decimal places. When rounding, if the number to the right of the last decimal place to be kept is less than five, it will be dropped, if it is five or over, a unit will be added.

(c) Example. The following is an example of the use of the formula.

Batch Record

Distilled spirits2249.1 proof gallons.
Eligible wine (14% alcohol by volume)2265.0 wine gallons.
Eligible wine (19% alcohol by volume)1020.0 wine gallons.
Eligible flavors100.9 proof gallons.

(26 U.S.C. 5010)

Use of effective (actual) tax rates.

(a) Select method of applying tax rate. The proprietor may choose to apply an effective tax rate to taxable removals of distilled spirits products in accordance with §§ 19.248, 19.249, or 19.250. Any proprietor who does not elect one of these options must establish an effective tax rate for each batch of distilled spirits product on which a claim for tax credit for alcohol derived from eligible wine or eligible flavor will be made. The proprietor must compute the effective tax rates for these products in accordance with the instructions in § 19.246.

(b) Record tax rates used. The proprietor must record the effective tax rate used on the dump or batch records for the products as required by § 19.598. The proprietor must record the serial numbers of cases of product removed at each rate on the record of tax determination or other related record. The proprietor must keep these records available for inspection by TTB officers.

(26 U.S.C. 5010, 5207)

Standard effective tax rate.

(a) Establishing a standard effective tax rate for a product. The proprietor may establish a permanent standard effective tax rate for any eligible distilled spirits product, rather than calculate a separate effective tax rate for each batch of product made. If the proprietor elects to use this option, the Start Printed Page 26258proprietor must determine the permanent standard effective tax rate based on the least quantity and the lowest alcohol content of eligible wine or eligible flavors used to manufacture the product. Thus, the permanent standard effective tax rate is the highest tax rate that would apply to the product because it is based on a batch with the least amount of alcohol from eligible wine and flavors that qualify for the credit under 26 U.S.C. 5010. By using this method the proprietor forgoes the possible use of a lower tax rate in exchange for the convenience of using a permanent standard effective tax rate that does not have to be recomputed for each batch of product made. The proprietor must keep a permanent record of the standard effective tax rates established for each product, in accordance with § 19.615.

(b) Batches subject to a higher tax rate. Whenever the proprietor manufactures a batch of the product with a lesser quantity or lower alcohol content of eligible wine or eligible flavor, this will result in a higher tax rate on the product since the product will have less alcohol qualifying for the credit under 26 U.S.C. 5010 and a higher percentage of alcohol taxable at the rate published in 26 U.S.C. 5001. In such instances, the proprietor must keep the cased goods segregated from other completed cases of the same product subject to the permanent standard effective tax rate for that product. The proprietor must determine the tax rate for the non-standard batch in accordance with § 19.247.

(c) TTB review of standard tax rates. If the appropriate TTB officer finds that the use of this procedure jeopardizes the revenue, or causes administrative difficulty, the proprietor upon notification from TTB must discontinue use of this procedure.

(26 U.S.C. 5010, 5207)

Average effective tax rate.

(a) Establishing an average tax rate. The proprietor may establish an average effective tax rate for any eligible distilled spirits product based on the total proof gallons in all batches of the same composition which have been produced during the preceding 6-month period and which have been or will be bottled or packaged, in whole or in part, for domestic consumption. At the beginning of each month, the proprietor must recompute the average effective tax rate so as to include only the immediately preceding 6-month period. The proprietor must show the average tax rate established for a product in the record of average effective tax rates as prescribed in § 19.613.

(b) TTB review of average effective tax rates. If the appropriate TTB officer finds that the use of this procedure jeopardizes the revenue, or causes administrative difficulty, the proprietor upon notification from TTB must discontinue use of this procedure.

(26 U.S.C. 5010, 5207)

Inventory reserve account.

(a) The proprietor may establish an inventory reserve account for any eligible distilled spirits product by maintaining an inventory reserve record as prescribed by § 19.614. The effective tax rate applied to each removal or other disposition will be the effective tax rate recorded on the inventory reserve record from which the removal or other disposition is depleted. With an inventory reserve account, the proprietor will tax pay removals on a first-in first-out basis regardless of which lot of product is actually removed.

(b) If the appropriate TTB officer finds that the use of this procedure jeopardizes the revenue, or causes administrative difficulty, the proprietor upon notification from TTB must discontinue use of this procedure.

(26 U.S.C. 5010, 5207)

Assessment of Taxes by TTB

Assessment of tax on spirits not accounted for or reported.

The proprietor is required by law to properly account for and report all spirits that he produces. TTB will assess the proprietor for the tax on the difference between the quantity reported and the quantity actually produced.

(26 U.S.C. 5006)

Assessment of tax for losses or unauthorized removals.

(a) Lost or destroyed in bond. TTB will assess the proprietor for the tax on spirits, denatured spirits or wines in bond that are lost or destroyed if:

(1) The proprietor is liable for the tax on spirits, denatured spirits or wines in bond, and the proprietor fails to file a claim for remission of the tax on spirits, denatured spirits, or wines that are lost or destroyed in bond as provided in § 19.263(a), or

(2) The proprietor files a claim for such loss or destruction but the claim is denied. Exception: The provisions of this section do not apply to spirits, denatured spirits or wines on which the tax is not collectable due to the provisions of 26 U.S.C. 5008(a) or (d), or 26 U.S.C. 5370, as applicable.

(b) Unauthorized removal from bond.

(1) TTB will assess the proprietor for the tax on any spirits, denatured spirits or wines in bond that are removed from bonded premises other than as authorized by law.

(2) TTB will assess the proprietor for tax on spirits or denatured spirits lost from casks or other packages as described in 26 U.S.C. 5006(b) if the proprietor does not pay the tax upon demand by the appropriate TTB officer.

(26 U.S.C. 5006, 5008, 5370)

Additional Tax Provisions

Tax on wine.

(a) Imposition of tax. All wine (including imitation, substandard, or artificial wine, and compounds sold as wine) produced in or imported into or brought into the United States is subject to tax pursuant to 26 U.S.C. 5041 or 7652. The proprietor may be liable for wine taxes under 26 U.S.C. 5362(b)(3) for wine that is transferred in bond to the proprietor's distilled spirits plant. The proprietor may not remove wine from the bonded premises of a distilled spirits plant for consumption or sale as wine. (See 26 U.S.C. 5362.)

(b) Liability for tax. Except as otherwise provided by law, the proprietor is liable for the tax on wine transferred in bond to the proprietor's distilled spirits plant from a bonded wine cellar or from another distilled spirits plant until the proprietor uses the wine in the manufacture of a distilled spirits product or properly disposes of the wine as provided elsewhere in this part.

(26 U.S.C. 5041, 5362, 7652)

Imported spirits.

The proprietor will incur a tax liability greater than the internal revenue tax imposed by 26 U.S.C. 5001(a)(1), if spirits originally imported for nonbeverage purposes are transferred from customs custody to TTB bonded premises pursuant to 26 U.S.C. 5232, and the proprietor subsequently decides to withdraw the spirits for beverage purposes. If the spirits would have been subject to a higher duty had they been imported for beverage purpose, the proprietor must pay a tax equal to the difference between the higher duty and the duty actually paid. Proprietors will refer to this additional tax as “additional tax—less duty” and pay it at the same time and in the same manner as the distilled spirits excise tax. Proprietors must compute the amount of “additional tax—less duty” owed by applying this rate to the total quantity of proof gallons withdrawn. The proprietor must make a separate entry on the tax return labeled Start Printed Page 26259“additional tax—less duty” and show the amount of tax due.

(26 U.S.C. 5001)

Additional tax on nonbeverage spirits.

The additional tax imposed by 26 U.S.C. 5001(a)(8), on imported spirits withdrawn from customs custody without payment of tax and later withdrawn from bonded premises for beverage purposes, and the related provisions of § 19.257, are not applicable to Puerto Rican or Virgin Islands spirits brought into the United States and transferred to bonded premises under the provisions of this part.

(26 U.S.C. 5201)

Subpart J—Claims

Scope.

This subpart covers the various types of claims that a proprietor may file and includes provisions regarding the following:

(a) General requirements for filing claims;

(b) Specific requirements for filing certain types of claims; and

(c) Remission, abatement, credit and refund of tax.

(26 U.S.C. 5008, 5215, 6065)

Requirements for Filing Claims

General requirements for filing claims.

(a) A proprietor must file all claims for abatement, remission, credit, or refund under this part on form TTB F 5620.8, Claim—Alcohol and Tobacco Tax and Trade Bureau Taxes. The claim must:

(1) Be filed with TTB's National Revenue Center;

(2) Show the name, address, and capacity of the claimant;

(3) Be signed by the claimant or by the claimant's duly authorized agent under penalties of perjury as provided in § 19.45; and

(4) Include any supporting documents required by this part. The supporting documents will be considered a part of the claim.

(b) The appropriate TTB officer may require that the claimant submit additional evidence or documentation to further support the legitimacy or accuracy of the claim.

(26 U.S.C. 5008, 5215, 6065)

Claims on spirits, denatured spirits, articles, or wines lost or destroyed in bond—specific requirements.

(a) Claims for remission. A claim for remission of tax liability relating to the destruction or loss of spirits, denatured spirits, articles, or wines in bond must include the following information:

(1) Identity of containers. Identification of the containers, by serial number if they were numbered, and location of the containers from which the spirits, denatured spirits, articles or wines were lost, or in which they were removed for destruction;

(2) Quantity of spirits. The quantity of spirits, denatured spirits, articles, or wines lost or destroyed from each container, and the total quantity of spirits or wines covered by the claim;

(3) Amount of claim. The total amount of tax for which the claim is filed;

(4) Identity of distilled spirits plant. The name, number, and address of the distilled spirits plant from which withdrawn without payment of tax or removed for transfer in bond, if the claim involves spirits so withdrawn or removed or if the claim involves wines transferred in bond, and the date and purpose of such withdrawal or removal. In the case of imported spirits lost or destroyed while being transferred from customs custody to TTB bond as provided in § 19.409 of this part, the name of the customs bonded warehouse, if any, and port of entry will be included instead of the plant name, number, and address;

(5) Date and cause. The date of the loss or destruction. If the date is not known, enter the date the loss or destruction was discovered. Include the cause of the loss together with relevant facts and details;

(6) Carrier. The name of the carrier if the loss occurred while the spirits were in transit;

(7) Consignee. The name and address of the consignee, in the case of spirits withdrawn without payment of tax which are lost before being used for research, development or testing;

(8) Theft. If lost by theft, the facts establishing that the loss did not occur as the result of any negligence, connivance, collusion or fraud on the part of the proprietor of the plant, owner, consignor, consignee, bailee, or carrier, or the employees or agents of any of them; and

(9) Insurance. In the case of a loss by theft, whether the claimant is indemnified or recompensed for the spirits or wines lost and if so, the amount and nature of indemnity or recompense and the actual value of the spirits or wines, less the tax.

(b) Claims for abatement, credit or refund. If a proprietor files a claim for abatement of an assessment, or for credit or refund of tax that has been paid or determined, for spirits, denatured spirits, articles, or wines lost or destroyed in bond, the claim must include all of the applicable information described in paragraph (a) of this section as well as the following:

(1) The date of assessment or payment of the tax for which abatement, credit or refund is claimed. If the tax has not been assessed or paid, give the date of the tax determination; and

(2) The name, plant number and address of the plant where the tax was determined, assessed or paid. If the tax was assessed against, or paid by, someone other than the proprietor, then give the name, address and capacity of the person who was assessed or paid the tax.

(c) Supporting documents—(1) General. If possible, the proprietor should support the information and details on all claims filed under this section with affidavits by persons having personal knowledge of the circumstances of the loss or destruction.

(2) Losses in transit. For claims on spirits, denatured spirits, articles, or wines lost while being transferred by a carrier, the claim must be supported by a copy of the bill of lading.

(3) Spirits withdrawn without payment of tax. If the lost spirits were withdrawn without payment of tax for research, development or testing, the claim must be supported by a copy of the proprietor's sample record prescribed in subpart V of this part.

(26 U.S.C. 5008, 5370)

Claims on spirits returned to bonded premises—specific requirements.

(a) General. Section 5215(a) of the IRC allows for the return of tax paid or tax determined spirits to the bonded premises of a distilled spirits plant under certain conditions. In addition, section 5008(c) of the IRC allows a proprietor to file a claim for credit or refund of tax on the spirits returned to bonded premises under section 5215(a). For information on allowable returns see subpart Q of this part.

(b) Claims for credit or refund. A claim for credit or refund of tax on spirits returned to bonded premises under section 5215(a), must include the following information:

(1) Quantity of spirits so returned;

(2) Amount of tax for which the claim is filed;

(3) Name, address, and plant number of the plant to which the spirits were returned and the date of the return;

(4) The purpose for which the spirits were returned; and

(5) The serial number of the gauge record on which the spirits were returned. Start Printed Page 26260

(c) Puerto Rican and Virgin Islands spirits and imported rum. If the alcoholic content of the spirits contain at least 92 percent Puerto Rican or Virgin Islands rum, or if the spirits contain rum imported from any area other than Puerto Rico and the Virgin Islands, the claim must show:

(1) Proof gallons of the finished product derived from Puerto Rican or Virgin Islands spirits, or derived from rum imported from any other area; and

(2) The amount of tax imposed by 26 U.S.C. 7652 or 26 U.S.C. 5001, determined at the time of withdrawal from bond, on the Puerto Rican or Virgin Islands spirits, or on the rum imported from any other area, contained in the product.

(d) Products subject to 26 U.S.C. 5010 tax credits. A claim for credit or refund of tax on spirits containing eligible wine or eligible flavors must include the date and serial number of the record of tax determination and the effective tax rate at which the tax was paid or determined. If this information is not provided, the amount of tax claimed will be based on the lowest effective tax rate applied to the product.

(e) Limits on claims. Claims for credit or refund of tax must be filed by the proprietor of the plant to which the spirits were returned. The claim must be filed within six months of the date of the return. No interest is allowed on any claims for refund or credit.

(26 U.S.C. 5008, 5215)

Claims relating to spirits lost after tax determination.

Claims for abatement, credit, or refund of tax under this part, relating to losses of spirits occurring on bonded premises after tax determination but prior to physical removal from such premises, will be prepared and filed in accordance with the regulations in § 19.263(b) and (c).

(26 U.S.C. 5008)

Rules Regarding Credits, Abatement, Remission or Refund

Claims for credit of tax.

A proprietor may file a claim for credit of tax, as provided in this part, after the tax has been determined, whether or not the tax has been paid. However, a proprietor may not anticipate allowance of a credit or make an adjusting entry in a tax return pending action on the claim.

(26 U.S.C. 5008, 5215)

Adjustments for credited tax.

When a proprietor receives a notice of allowance of credit from TTB, including notification of credit for tax on spirits exported with benefit of drawback as provided in part 28 of this chapter, the proprietor will make an adjusting entry and an explanatory statement on his next excise tax return. The proprietor will identify the notification of allowance of credit that authorizes the adjusting entry in the explanatory statement. If the allowable tax credit is greater than the tax due on the excise tax return, the proprietor will apply the balance of the tax credit to one or more following tax returns until the tax credit is exhausted.

(26 U.S.C. 5008, 5062)

Allowance of remission, abatement, credit or refund of tax.

The appropriate TTB officer is authorized to allow claims for remission, abatement, credit, and refund of tax, filed under the provisions of this part.

(26 U.S.C. 5008)

Rules for Puerto Rican and Virgin Islands Spirits

Puerto Rican and Virgin Islands spirits.

(a) The provisions of 26 U.S.C. 5008, authorizing abatement, remission, credit, or refund for loss or destruction of distilled spirits, also apply to spirits brought into the United States from Puerto Rico or the Virgin Islands with respect to the following:

(1) Spirits lost while in TTB bond;

(2) Voluntary destruction of spirits in bond;

(3) Spirits returned to bonded premises after withdrawal without payment of tax; and

(4) Spirits returned to bonded premises after withdrawal upon tax determination.

(b) In addition to the information required by § 19.263, claims relating to spirits lost in bond must show the name of the producer and the serial number and date of the formula under which produced, if any.

(26 U.S.C. 5008, 5215)

Subpart K—Gauging

Scope.

This subpart covers gauging, which is the determination of the quantity and the proof of distilled spirits. Topics covered in this subpart include: the general requirements for gauging; when gauges are required at distilled spirits plants; and special rules that apply to the gauges performed at distilled spirits plants. For additional requirements and procedures governing gauging, see part 30 of this chapter, Gauging Manual.

General requirements for gauging and measuring equipment.

A proprietor is required to perform periodic gauges of the spirits, wines, and alcoholic flavorings at the plant. A proprietor must have accurate and readily usable gauging and measuring equipment as required by this part and part 30 of this chapter. At any time, TTB may require that the proprietor's gauges be performed in the presence of, and be verified by, a TTB officer. In addition, TTB may disapprove the use of any equipment, or the proprietor's means of gauging, if TTB finds that it is not sufficiently accurate or suitable for the gauges and measurements to be made.

(26 U.S.C. 5006, 5204)

Required Gauges

When gauges are required.

The proprietor must gauge spirits, wine, and alcoholic flavoring materials when they are:

(a) Produced and entered for deposit;

(b) Filled into packages from storage tanks;

(c) Transferred or received in bond;

(d) Transferred between operational accounts;

(e) Mixed in the manufacture of a distilled spirits product;

(f) Mingled under § 19.329;

(g) Reduced in proof before bottling;

(h) Voluntarily destroyed;

(i) Removed or withdrawn from bond;

(j) Tax determined;

(k) Returned to bond;

(l) Denatured; or

(m) When required by a TTB officer.

(26 U.S.C. 5204, 5559)

Rules for Gauging

Quantity determination of bulk spirits.

(a) Gauge of spirits in packages. When determining the quantity of bulk spirits in packages, the proprietor must determine the quantity by weight as provided in part 30 of this chapter.

(b) Bulk Gauge for Tax Determination. When determining the quantity of bulk spirits for determination of tax or when performing a production gauge that will be used for tax determination, the proprietor must determine the quantity by weight as provided in part 30 of this chapter or by an accurate mass flow meter. For tax determination purposes, an accurate mass flow meter is a mass flow meter that has been certified by the manufacturer or other qualified person as accurate within a tolerance of +/−0.1%.

(c) Volumetric determination. Except as provided in paragraphs (a) and (b) of this section, in all other instances when the proprietor is required to gauge bulk Start Printed Page 26261spirits in bond, the proprietor may determine the quantity by either weight or volume. When the proprietor determines the quantity by volume, the proprietor must measure the spirits by using:

(1) A tank or bulk conveyance for which a calibration chart is provided, with the calibration charts certified as accurate by persons qualified to calibrate tanks or bulk conveyances; or

(2) An accurate mass flow meter. For purposes of this paragraph, an accurate mass flow meter is a mass flow meter that has been certified by the manufacturer or other qualified person as accurate within a tolerance of +/−0.5%; or

(3) Another device or method when approved by the appropriate TTB officer.

(26 U.S.C. 5559)

Proof determination of distilled spirits.

(a) Except as provided in paragraph (b) of this section, when the proprietor is required to gauge distilled spirits, the proprietor must determine the proof in accordance with the procedures prescribed in part 30 of this chapter, Gauging Manual.

(b) Use of Initial proof. After a proprietor has determined the proof of distilled spirits in accordance with the procedures in part 30 of this part, a proprietor may use the initial determination of proof when required to make a later gauge at the same plant. However, a proprietor must determine the proof again when:

(1) A bottling tank gauge is required by § 19.353;

(2) A gauge for tax determination is required by § 19.226; or

(3) In any case where the proof may have changed.

(26 U.S.C. 5559)

Gauging of spirits in bottles.

When gauging spirits in bottles, the proprietor may determine the proof and quantity from case markings and label information if the bottles are full and there is no evidence that tampering has occurred.

(26 U.S.C. 5204, 5559)

Gauging of alcoholic flavoring materials.

Generally, alcoholic flavoring material must be gauged when dumped. However, when received from a manufacturer in a closed, nonporous container such material may be gauged by using the proof shown on the container label or a related statement of proof from the manufacturer. When the proof is determined from a label or manufacturer's statement, the proprietor will test a sufficient number of samples to verify the accuracy of the proof so determined. TTB may require that alcoholic flavoring materials be gauged by the methods provided in part 30 of this chapter.

(26 U.S.C. 5204, 5559)

Determination of tare.

When packages are to be individually gauged for withdrawal from bonded premises, the actual tare must be determined in accordance with part 30 of this chapter.

(26 U.S.C. 5204)

Production gauge.

(a) General requirements for production gauges. A proprietor must gauge all spirits by determining the quantity and proof as soon as reasonably possible after production is completed. Except as otherwise provide in this section, a proprietor may determine the quantity by volume or by weight, by an accurate mass flow meter, or when approved by the appropriate TTB officer, by other devices or methods that accurately determine the quantities. If caramel is added to brandy or rum, the proof of the spirits must be determined after the addition. Spirits in each receiving tank will be gauged before any reduction in proof and both before and after each removal of spirits. The gauges must be recorded in the records required by § 19.585.

(b) Tax to be determined on production gauge. If the tax is to be determined based on the production gauge, all transaction records must be marked “Withdrawal on Production Gauge.” A proprietor may determine the tax based on the production gauge if the spirits are:

(1) Weighed into bulk conveyances or metered using an accurate mass flow meter;

(2) Uniformly filled by weight or an accurate mass flow meter into metal packages; or

(3) Filled by weight or an accurate mass flow meter into packages for immediate withdrawal from bonded premises with the details recorded on a package gauge record in accordance with § 19.619.

(c) Tax not to be determined on production gauge. If spirits are drawn from the production system into barrels, drums, or similar portable containers of the same rated capacity and the containers are filled to capacity, and the tax is not to be determined on the basis of the production gauge, the gauge may be made by:

(1) Weighing in a tank, converting the weight into proof gallons, and determining the average content of each container;

(2) Measuring volumetrically, in a calibrated tank, converting the wine gallons determined into proof gallons, and determining the average content of each container;

(3) Converting the rated capacity into proof gallons to determine the average content of each container. Rated capacity will be determined from specifications of the manufacturer. The proprietor will determine the rated capacity of used cooperage; or

(4) Determining by an accurate mass flow meter or a device or method approved under paragraph (a) of this section, the total quantity filled into containers, and determining the average content of each container.

(d) Records of production gauge. For the production gauge, fractional proof gallons will be rounded to the nearest one-tenth and the average content and the number of packages filled will be used in computing the quantity produced. The actual proof gallons in each remnant container must be shown. As provided in § 19.618, a separate gauge record will be prepared for each lot of packages filled (see § 19.485) and for each removal by pipeline or bulk conveyance for deposit in bond on the same plant premises. The gauge record will show “Deposit in storage” or “Deposit in processing.” If spirits are to be transferred in bond or withdrawn from bond, the production gauge will be made on the form or record required by this part (accompanied by a package gauge record, if required).

(26 U.S.C. 5204, 5211)

Subpart L—Production of Distilled Spirits

General.

The regulations in this subpart cover production operations. A proprietor authorized to produce distilled spirits must conduct production operations in accordance with the provisions of this subpart. Subpart V of this part sets forth record keeping requirements that apply to production operations.

(26 U.S.C. 5201)

Notification to TTB When Beginning or Suspending Production Operations

Notice of operations.

A proprietor authorized to produce distilled spirits may not commence, suspend, or resume production operations at the plant without first providing written notice to TTB.

(a) Beginning operations. A proprietor must file a letterhead notice with the appropriate TTB officer before Start Printed Page 26262beginning or resuming production operations. A proprietor must not begin or resume operations before the time specified in the notice.

(b) Suspending operations. If a proprietor intends to suspend production operations for a period of 90 days or more, the proprietor must file a letterhead notice with the appropriate TTB officer specifying the date on which operations will be suspended.

(c) Discontinuing reports. A proprietor is not required to prepare or file reports of production operations under subpart V of this part for periods during which production operations are suspended.

(26 U.S.C. 5221)

Rules for Receipt, Use, and Disposal of Materials

Receipt of materials.

When a proprietor receives certain materials on bonded premises, the proprietor must determine the quantity received and record those quantities in the records prescribed by subpart V of this part. This requirement applies to:

(a) Fermenting materials;

(b) Distilling materials (including nonpotable chemical mixtures containing spirits); and

(c) Spirits, denatured spirits, articles, and spirits residue for redistillation.

(26 U.S.C. 5201, 5222, 5223)

Removal of fermenting material.

Material received for use as fermenting material may be removed from or used on bonded premises for other purposes. The proprietor must keep a record of use or removal as provided in subpart V of this part.

(26 U.S.C. 5201)

Removal or destruction of distilling material.

(a) Distilling material. Generally, a proprietor may not remove distilling material from bonded premises before it is distilled. However, a proprietor may remove mash, wort, wash or other distilling material:

(1) To plant premises, other than bonded premises, for use in any business authorized under § 19.55;

(2) To other premises for use in processes not involving the production of spirits, alcohol beverages, or vinegar by the vaporizing process; or

(3) For destruction.

(b) Residues. A proprietor may remove the residue of distilling material not introduced into the production system from the premises if the liquid is extracted from the material before removal and the liquid is not received at any distilled spirits plant or bonded wine cellar. A proprietor may return residue of beer used as distilling material to the producing brewery. A proprietor may destroy distilling material produced and wine and beer received for use as distilling material.

(c) Records. A proprietor must keep a record of removal or destruction as provided in subpart V of this part.

(26 U.S.C. 5222, 5370)

Fermented materials

Fermented materials that a proprietor intends to use in the production of spirits must be:

(a) Produced on the bonded premises where used;

(b) Received from a bonded wine cellar in the case of wine;

(c) Beer received from a brewery without payment of tax, or beer that was removed from a brewery upon determination of tax; or

(d) Apple cider exempt from tax under 26 U.S.C. 5042(a)(1).

(26 U.S.C. 5201, 5222, 5223)

Use of materials in production of spirits.

A proprietor may produce spirits from any suitable material in accordance with the proprietor's statements of production procedure in the notice of registration. Materials from which alcohol will not be produced may be used in production only if the use of the materials is described in the approved statements of production procedure. The distillation of nonpotable chemical mixtures as described in § 19.36 will be deemed to be the original and continuous distillation of the spirits in such mixtures and to constitute the production of spirits.

(26 U.S.C. 5172, 5178)

Rules for Production of Spirits

Distillation.

The distillation of spirits must be done in a continuous system. Distilling operations are continuous when the spirits are moved through the various steps of production as quickly as plant operation will permit. The proprietor may move the product through as many distilling or other production operations as desired, provided the operations are continuous. The collection of unfinished spirits for the purpose of redistillation is not considered to be a break in the continuity of the distilling procedure. However, the quantity and proof of any unfinished spirits must be determined and recorded before any mingling with other materials or before any further operations involving the unfinished spirits outside the continuous system. Before the production gauge, spirits may be held only as long as reasonably necessary to complete the production procedure.

(26 U.S.C. 5178, 5211, 5222)

Treatment during production.

During production, the proprietor may purify or refine the spirits by using any material that will not remain in the finished product. Juniper berries and other natural aromatics or their extracted oils may be used in the distillation of gin. Spirits may be percolated through or treated with oak chips that have not been treated with any chemical. The proprietor must destroy or so treat any materials used in treatment of spirits, and which do not remain in the spirits, so as to preclude the extraction of potable spirits.

(26 U.S.C. 5201)

Addition of caramel to rum or brandy and addition of oak chips to spirits.

A proprietor may add caramel that has no material sweetening properties to rum or brandy in packages or tanks prior to production gauge. A proprietor may add oak chips that have not been treated with any chemical to packages of spirits prior to or after the production gauge. The proprietor must note the use of oak chips on all transaction records.

(26 U.S.C. 5201)

Production gauge.

A proprietor must gauge all spirits by determining the quantity and proof as soon as reasonably possible after production is completed. Additional requirements regarding production gauges are found in subpart K of this part.

(26 U.S.C. 5204, 5211)

Identification of spirits.

Upon completion of the production gauge, the proprietor must identify containers of spirits as provided in subpart S of this part. When the proprietor intends to enter spirits into bonded storage for later packaging in wooden packages, the proprietor may identify the spirits with the designation to which they would be entitled if drawn into wooden packages, followed by the word “Designate,” for example, “Bourbon Whisky Designate.”

(26 U.S.C. 5201, 5206)

Entry.

(a) Following completion of the production gauge, a proprietor must make the appropriate entry for:

(1) Deposit of the spirits on bonded premises for storage or processing;

(2) Withdrawal of the spirits on determination of tax;

(3) Withdrawal of the spirits free of tax; Start Printed Page 26263

(4) Withdrawal of the spirits without payment of tax; or

(5) Transfer of the spirits for redistillation.

(b) A proprietor may use the production gauge as the entry gauge when spirits are:

(1) Deposited for storage or processing at the same distilled spirits plant; or

(2) Entered for redistillation at the same distilled spirits plant.

(c) When spirits are entered for deposit at another distilled spirits plant or are entered for withdrawal or redistillation, the provisions subpart P of this part will apply.

(26 U.S.C. 5211)

Distillates containing extraneous substances.

(a) Use in production. Distillates that contain substantial quantities of fusel oil, aldehydes, or other extraneous substances may be removed from the distilling system before the production gauge and promptly added to fermenting or distilling material at the distillery where produced.

(b) Use at adjacent bonded wine cellar. Distillates that contain aldehydes may be removed, without payment of tax, to an adjacent bonded wine cellar for use in fermentation of wine to be used as distilling material at the distilled spirits plant from which the distillates were removed. The removal of distillates to an adjacent bonded wine cellar must be done as provided in § 19.419. The receipt and use of those distillates must conform to the requirements of part 24 of this chapter.

(26 U.S.C. 5201, 5222, 5373)

Rules for Chemical By-Products

Spirits content of chemicals produced.

All chemicals and chemical by-products produced must be substantially free of spirits before being removed from bonded premises. The spirits content of chemicals to be removed from bonded premises must not exceed 10 percent by volume unless the appropriate TTB officer approves higher limits. A proprietor must test chemicals for spirits content and maintain a record of such tests as required by § 19.584.

(26 U.S.C. 5201)

Disposition of chemicals.

Chemicals that meet the requirements in § 19.308 may be removed from bonded premises by pipeline or in containers marked to show the contents. The proprietor must determine the quantities of chemicals removed from bonded premises and keep records of removals as required by § 19.586. A TTB officer may take samples of chemicals.

(26 U.S.C. 5201, 5222)

Wash water.

Water used in washing chemicals to remove spirits may be run into a wash tank or a distilling material tank, or may be destroyed or disposed of on the premises.

(26 U.S.C. 5008, 5201)

Production Inventories

Physical inventories.

A proprietor must take a physical inventory of the spirits and denatured spirits in tanks and other containers in the production account at the close of each calendar quarter. A proprietor must record the results of the inventory as provided in subpart V of this part and must show separately spirits and denatured spirits received for redistillation. TTB may require additional inventories be taken at any time.

(26 U.S.C. 5201)

Rules for Redistillation

General.

Distillers or processors may redistill spirits, denatured spirits, articles, and spirits residues. Some redistillation requires an approved formula on form TTB F 5100.51, Formula and Process for Domestic and Imported Alcohol Beverages, as specified in §§ 5.26 and 5.27 of this chapter.

(26 U.S.C. 5223)

Receipts for redistillation.

(a) A proprietor may receive and redistill spirits or denatured spirits that:

(1) Have not been removed from bond;

(2) Have been withdrawn from bond on payment or determination of tax and returned to bond under subpart Q of this part;

(3) Have been withdrawn from bond free of tax or without payment of tax and returned to bond under subpart T of this part; or

(4) Have been abandoned to the United States and sold to the proprietor without the payment of tax.

(b) A proprietor may also receive and redistill:

(1) Recovered denatured spirits and recovered articles returned under § 19.454, and

(2) Articles and spirits residues received under § 19.454.

(26 U.S.C. 5201, 5215, 5223, 5243)

Redistillation.

(a) TTB has established standards of identity for the various classes and types of distilled spirits. Those standards are found in part 5 of this chapter. If a proprietor intends to redistill spirits, the proprietor must ensure that the redistillation process does not cause the distillate to be become ineligible for designation in the class or type of spirits that the proprietor intends to produce. Therefore, spirits must not be redistilled at a proof lower than that allowed for the class and type at which the spirits were originally produced, unless the redistilled spirits are to be:

(1) Used in wine production;

(2) Used in the manufacture of gin or vodka; or

(3) Designated as alcohol.

(b) In order to preserve the class and type of spirits during the redistillation process, different kinds of spirits must be redistilled separately, or with distilling material of the same kind or type as that from which the spirits were originally produced. However, this restriction does not apply when:

(1) Brandy is redistilled into “spirits-fruit” or “neutral spirits-fruit”. In this case the resulting distillate must not be used for producing wine;

(2) Whiskey is redistilled into “spirits-grain” or “neutral spirits-grain”;

(3) Spirits originally distilled from different kinds of material are redistilled into “spirits-mixed” or “neutral spirits-mixed”; or

(4) The spirits are redistilled into alcohol.

(c) All spirits redistilled after the production gauge will be treated the same as if the spirits had been originally produced by the redistiller. Spirits recovered by redistillation of denatured spirits, articles, or spirits residues may not be withdrawn from bonded premises except for industrial use or after denaturation. Otherwise, all provisions of this part and 26 U.S.C. Chapter 51 applicable to the original production of spirits will be applicable to the redistillation of spirits. Nothing in this section affects any provision of this chapter relating to the labeling of distilled spirits.

(26 U.S.C. 5215, 5223)

Subpart M—Storage of Distilled Spirits

General.

This subpart covers storage operations at distilled spirits plants. A proprietor qualified as a warehouseman and authorized to store bulk distilled spirits and wines must conduct storage operations in accordance with the provisions of this subpart. Subpart V of this part sets forth record keeping requirements that apply to storage operations.

Start Printed Page 26264

(26 U.S.C. 5201)

Receipt and Storage of Spirits and Wines

Receipt and storage of bulk spirits and wines.

(a) Deposit of spirits into storage account. A proprietor may receive bulk spirits into the storage account:

(1) From the production facilities of the same plant;

(2) By transfer in bond from another plant;

(3) From customs custody without payment of tax; or

(4) By return to bulk storage.

(b) Deposit of wine into storage account. A proprietor may receive bulk wine into the storage account:

(1) By transfer in bond from a bonded wine cellar; or

(2) By transfer in bond from another distilled spirits plant.

(c) Storage. A proprietor may store spirits or wines in packages, tanks or portable bulk containers in the storage account on the bonded premises. If stored in portable containers, the containers must be kept so that they can be readily inspected or inventoried by TTB officers.

(26 U.S.C. 5201, 5202, 5211, 5212, 5231, 5232, 5601)

Rules for Filling and Changing Packages

Filling of packages from tanks.

A proprietor may fill spirits or wines into packages from storage tanks on bonded premises. The spirits or wines in the tank must be gauged before the filling of packages begins and again when the filling is finished if the tank is not empty. The results of the gauges must be recorded in the records required by § 19.618.

(26 U.S.C. 5201)

Change of packages.

A proprietor may transfer spirits or wines in storage from one package to another. Each new package must contain spirits from only one package except in the case of spirits of 190 degrees or more proof. Packages of spirits must be marked as provided in subpart S of this part. Each package of wine must bear the same marks as the package from which the wine was transferred.

(26 U.S.C. 5201)

Rules for Mingling or Blending Spirits

Mingling or blending of spirits for further storage.

A proprietor may mingle or blend spirits in the storage account according to the following rules:

(a) Spirits distilled at 190 degrees or more of proof, whether or not later reduced, may be mingled in storage.

(b) Domestic spirits distilled at less than 190 degrees of proof may be mingled for withdrawal or further storage if the spirits:

(1) Are of the same kind; and

(2) Were produced in the same State.

(c) Imported spirits distilled at less than 190 degrees of proof may be mingled for withdrawal or further storage if the spirits:

(1) Are of the same kind;

(2) Were produced in the same foreign country; and

(3) Were treated, blended, or compounded in the same foreign country and the U.S. import duty was paid at the same rate.

(d) Imported spirits distilled at less than 190 degrees of proof that are recognized as distinctive products under part 5 of this chapter may be mingled for withdrawal or further storage if the spirits:

(1) Are of the same kind;

(2) Were produced by the same proprietor in the same foreign country; and

(3) Were treated, blended, or compounded by the same proprietor in the same foreign country and the U.S. import duty was paid at the same rate.

(e) Fruit brandies distilled from the same kind of fruit at not more than 170 degrees of proof may, for the sole purpose of perfecting such brandies according to commercial standards, be blended with each other, or with any blend of such fruit brandies in storage. Rums may, for the sole purpose of perfecting them according to commercial standards, be blended with each other, or with any blend of rums.

(f) Packaging after mingling or blending must be done under the provisions of § 19.324. The mingled or blended spirits may be returned to the packages from which they were dumped, or as many of the packages as needed.

(26 U.S.C. 5201, 5214)

Packages dumped for mingling.

A proprietor must examine each package of spirits to be dumped for mingling. If any package bears evidence of loss due to theft or unauthorized voluntary destruction, the proprietor must notify the appropriate TTB officer before dumping the package. Mingled spirits must be recorded on the tank record required by § 19.592 and § 19.593, as appropriate.

(26 U.S.C. 5201)

Determining age of mingled spirits.

When spirits are mingled, the age of the spirits for the entire lot will be the age of the youngest spirits contained in the lot.

(26 U.S.C. 5201)

Mingled spirits or wines held in tanks.

When wines or spirits of less than 190 degrees of proof are mingled in a tank, the proprietor must gauge the spirits or wines in the tank and record the mingling gauge on the tank record prescribed in § 19.592.

(26 U.S.C. 5201)

Use of Oak Chips and Caramel

Use of oak chips in spirits and caramel in brandy and rum.

A proprietor may add oak chips that have not been treated with any chemical to packages of spirits. The proprietor must note the use of oak chips on all transaction records. A proprietor may add caramel that has no material sweetening properties to rum or brandy stored in packages or tanks.

(26 U.S.C. 5201)

Storage Inventories

Physical inventories.

A proprietor must take a physical inventory of all spirits and wines held in the storage account in tanks and other containers (except packages) at the close of each calendar quarter. A proprietor must record the results of the inventory as provided in subpart V of this part. TTB may require additional inventories at any time.

(26 U.S.C. 5201)

Subpart N—Processing of Distilled Spirits

General.

This subpart covers processing operations at distilled spirits plants. A proprietor authorized to perform processing operations must conduct processing operations in accordance with the provisions of this subpart. Subpart V of this part sets forth record keeping requirements that apply to processing operations. Also, the provisions of subpart O of this part apply if a proprietor denatures spirits or manufactures articles on bonded premises as part of processing operations under this subpart.

(26 U.S.C. 5201)

Start Printed Page 26265

Rules for Receipt and Use of Spirits, Wines, and Alcoholic Flavoring Materials