The TTB: A letter with their name on it in your mailbox is enough to make any distillery owner’s heart skip a beat. If you have a DSP license, the TTB wants to hear from you – whether you’re in production or not. It’s important to cover your ass(ets) with proper tracking, reporting, and filing from the very beginning – or you could wind up in hot water.
We get it – there’s a lot of moving parts to account for. You can read the full TTB list of Common Compliance and Tax Issues, but in the meantime we’ve compiled a quick list for you of 18 small mistakes that you may not think much of – but could end up costing you big.
1. Failure to pay FET correctly and/or on time.
While “one day late” may not seem like a huge deal, according to the TTB: “Failure to file and make tax return payments timely, on or before the close of business on the prescribed last day for filing, subjects DSP proprietors to penalties, interest, and tax additions” as well as a $1,000 fine and up to 1 year of imprisonment for each occurrence of failure to file.
Jail time? No thanks!
2. Failure to submit operations reports monthly.
Monthly operations reports are due to the TTB no later than the 15th day of the month following the reporting period – even if you didn’t produce any spirit that month!
3. Failure to maintain complete proper records of operations for 3 years.
The TTB requires each DSP to keep all records for a minimum of 3 years from the date of each report.
4. Not recording proof/fill tests.
As a rule of thumb, you should be performing at least three Bottle Proof & Fill Tests per bottling run – testing one bottle from the beginning, middle and end of each run. Watch a video on how you can perform these fill tests using DISTIILL x 5 software.
5. Recording inaccurate bottle proof by more than the allowed variance.
Read the regulations for allowed variances here.
6. Failure to include a signature on inventory summaries.
The TTB cites this error as the most frequent violation of inventory record-keeping requirements.
7. Contents do not match label description.
Proof, Fill, Class, Type, State, etc.
8. Inaccurate gauging of formulated products.
The TTB notes that DSPs frequently record the gauged volume incorrectly when they transfer alcohol from place to place. They recommend making routine gauging of spirits in storage and processing part of your standard operating procedures to avoid inconsistencies or inaccurate data.
9. Putting sugar in things it shouldn’t be in.
Please, don’t put sugar in your bourbon. It’s illegal!
10. Having unlabeled or open, filled bottles.
If there’s booze in it, it has to be labeled and closed.
11. Breaking cases before moving product out of bond.
12. Holding inadequate bond.
If your inventory is worth $100k in FET and you only have $50k in bond, that is inadequate.
13. Not physically removing inventory from the DSP when sold the tasting room, or selling bonded inventory in the tasting room.
All product in a tasting room has to be removed from bond.
14. Changes in DSP, location, ownership, etc., not reported within 30 days.
15. Unapproved facility modifications.
16. Failure to properly label/identify equipment and vessels.
It should be clear to any government compliance personnel who enters your distillery at any time where the tanks, stills, and fermenters are located, and what is in the tanks. All structures, areas, apparatus, and equipment must be marked with a unique serial number.
17. Not paying losses on inventory shortages.
Shortages are usually found in cased finished goods inventory. When the recorded quantity is greater than the quantity determined by physical inventory, the difference is an unexplained shortage. DSPs must pay taxes on these shortages. It is important to understand the difference between a loss and a shortage!
18. Inadequate security on buildings and tanks.
The TTB requires adequate security measures that will “protect the revenue.” This means that all buildings, indoor and outdoor tanks must have secure locks that meet TTB requirements.
The TTB publishes audit data for past years on their website. We sorted through recent paperwork and did some quick math, and found the average audit fee seen by craft distilleries was $71,000 in 2020, and $146,000 in 2019. If you are not confident in your current tracking and reporting system, there can be serious risk involved.
The easiest way to make sure your reports match up and are accurate is to utilize a software system that will alert you if there is any missing information or miscalculated/misaligned numbers. Trying to run and operate a distillery and stay on top of your TTB reports can at times feel impossible, but making a comeback from TTB fines and penalties can be even more brutal. Let us do the hard stuff for you!