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Common Compliance and Tax Issues Found During Brewery Audits

In support of TTB’s mission to assist industry members in understanding and complying with the TTB regulations, we discuss the most common compliance and tax issues we encounter during brewery audits in this guide. We have grouped the issues into four categories:

Within these categories, we list common audit issues, beginning with the issues we encounter most frequently. We then provide advice on how to avoid these problems.

Contact Information

If you have questions about this tutorial, you may contact the Tax Audit Division office nearest to you.

For general questions regarding recordkeeping, reporting, excise tax, or other compliance matters, you may contact the National Revenue Center (NRC) toll free at 1–877–882–3277 or via email at TTBInternetQuestions@ttb.gov.

You also may find more information on our Web site at http://www.ttb.gov/about/contact.shtml or www.ttb.gov.

Using This Tutorial

This brewer’s guide details common tax and compliance issues found at breweries and discusses how to avoid these problems. We also include links to the TTB regulations covering brewery operations, which can be found in Chapter I of Title 27 of the Code of Federal Regulations (27 CFR 25.1 through 25.301 (part 25)), TTB forms, and other helpful resources.

TTB forms used in this brewer’s guide
Additional resources for breweries

Common Compliance and Tax Issues at Breweries

Records

1. Daily Records of Operations
2. Inventory Records
3. Brewer’s Report of Operations
4. General Recordkeeping Requirements
5. Retention and Preservation of Records
6. Penalties for Failure to Maintain Records

Production and Inventory

1. Meaning of Terms
2. Beer Returned to the Brewery
3. Tanks
4. Testing and Measuring Devices
5. Storage of Beer

Taxes

1. Excise Tax Returns
2. Tax and Determination of Tax on Keg Beer, Bottled Beer and Rate of Tax
3. Tax and Determination of Tax Payment
4. Penalties for Failure to File Returns

Reporting

1. Brewer’s Report of Operations and Brew Pub Report of Operations
2. Notice of Intent (NOI) to Destroy Beer
3. Alcohol Dealer Registration and Recordkeeping (previously Special Occupational Tax Registration)

 

Records Issue 1 — Daily Records of Operations

TTB auditors most frequently cite a brewer’s lack of, and inaccuracy of, records required under TTB regulations as the number one non-compliance issue. Under 27 CFR part 25, brewers must complete and maintain daily records and reports that capture information about brewery operations.

As outlined in 27 CFR 25.292, daily records must include:

  • Each kind of material received and used in the production of beer and cereal beverage;
  • The amount of beer and cereal beverage produced;
  • Beer and cereal beverage transferred for, and returned from, bottling and racking, or bottled, racked, or removed from the brewery;
    • Beer removed for consumption or sale -- For each removal, the record shows the date of removal, the person to whom the brewer shipped or delivered the beer, and the quantities of beer removed calculated in kegs and in bottles;
    • Beer removed without payment of tax -- For each removal, the record shows the date of removal, the person to whom the brewer shipped or delivered the beer, and the quantities of beer removed in kegs, bottles, tanks, tank cars, tank trucks, tank ships, barges, or deep tanks of vessels;
  • Packaged beer used for laboratory samples at the brewery;
  • Beer consumed at the brewery;
  • Beer returned to the brewery from which it was originally removed or from another brewery that the brewer owns;
  • Beer reconditioned, used as material, or destroyed;
  • Beer received from other breweries or received from pilot brewing plants;
  • Beer and cereal beverage lost due to breakage, theft, casualty, or other unusual cause;
  • Brewing materials sold or transferred to pilot brewing plants (including the name and address of the person to whom it was shipped or delivered), and brewing materials used in the manufacture of wort, wort concentrate, malt syrup, and malt extract for sale or removal;
  • Record of tests of measuring devices; and
  • Beer purchased from other brewers in the purchasing brewer's barrels and kegs and such beer sold to other brewers.

All entries in the daily records must show the date of the operation or transaction, accurately and clearly reflect the details of each operation or transaction, and contain all data necessary to enable brewers to prepare summaries, reports, and returns. The records should verify removals of beer and cereal beverages, verify claims, and confirm compliance with laws and regulations.

 

Most Common Daily Recordkeeping Mistakes

 

TTB often finds that brewers do not properly maintain daily records that support entries that they make on the Brewer’s Report of Operations (BROP) (TTB F 5130.9) or on the Quarterly Brewer's Report of Operations (TTB F 5130.26). Brewers most commonly fail to:

  • Accurately report the amount of beer returned to the brewery;
  • Properly maintain records regarding destruction of beer;
  • Appropriately record lab sample removals; and
  • Appropriately report, record, or maintain supporting documents regarding losses or shortages.

 

How to Avoid Daily Recordkeeping Mistakes

 

  1. Review 27 CFR 25.292. This regulation provides a complete list of the daily records that brewers must complete and maintain. These daily records are very important because they are the source documents on which the Excise Tax and BROP are based.
  2. As required by 27 CFR 25.291(b), complete each entry required under part 25 on the daily records no later than the close of the next business day after the day of the transaction. Build recordkeeping duties into the brewery’s daily work schedule.
  3. Be extra vigilant with recordkeeping requirements when beer is:
    • Returned to the brewery;
    • Destroyed on or off premises; or
    • Removed without payment of tax under subpart L, such as samples removed for analysis or testing, removals of beer unfit for beverage use, or removals of bulk beer to a distilled spirits plant.
  4. If you have questions, you may contact the Brewery Applications Section (Beer Tax Group) at the NRC.

 

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Records Issue 2 — Inventory Records

Under 27 CFR 25.294, brewers must take a physical inventory of beer and cereal beverage at least once per calendar month. The brewer must retain inventory records and make them available for inspection when an appropriate TTB officer requests them.

The record of inventory must include the following:

  • Date taken;
  • Quantity of beer and cereal beverage on hand;
  • Losses, gains, and shortages; and
  • Signature–under penalties of perjury–of the brewer or person taking the inventory.

Most Common Inventory Mistakes

 

TTB most commonly finds the following inventory errors:

  • Inventory sheets are not signed (see Production and Inventory Issue–1).
  • Brewers fail to take inventory each month.
  • Brewers fail to properly maintain inventory records or fail to make inventories available for inspection.
  • Brewers do not adequately report or document shortages and losses revealed by physical inventory.
  • Inventory records do not agree with the BROP.

Physical inventories must be performed every month (§ 25.294(a))

TTB auditors find that brewers neglect to perform inventories or fail to perform complete inventories. For example, a brewer may complete an inventory of premises but may fail to account for product loaded onto trucks. TTB cannot always rely on a brewer’s book inventory to calculate tax because, in many cases, actual inventory count is less than book inventory.

Brewers must document shortages

Under § 25.294, brewers are required to maintain monthly physical inventories of all beer on hand and to report any losses, gains, and shortages. When TTB discovers an inventory issue it is generally because the brewer’s inventory records do not agree with the BROP or the brewer uses line 11 (physical inventory disclosed an overage) and line 31 (physical inventory disclosed a shortage) of the BROP to balance the report totals. TTB finds that brewers frequently do not calculate overages and shortages from cellar operations, tank logs, and meter readings separately. Instead, they calculate the net difference between the amount of cellar production, plus additions against the total of beer transferred to racking and bottling.

 

How to Avoid Inventory Issues

 

  1. Review 27 CFR 25.294. This regulation describes the records required for, and timing of, physical inventory counts.
  2. As permitted in 27 CFR 25.52, submit a request to TTB if a variance from the timing of inventory requirements (§ 25.294) is necessary.
  3. Make sure the brewer or other authorized individual signs the inventory summary under penalty of perjury, as outlined in 25 CFR 25.299. Before signing an inventory summary, the signee should make sure that the inventory record is accurate and complete.
  4. Properly complete and maintain reports of losses and shortages. If you report losses on the BROP, you must ensure that what you report is actually a loss and not a shortage.

    Report losses on line 30 of the BROP for "recorded losses, including theft" and report, "physical inventory disclosed a shortage," on line 31, columns (d) and (f). As outlined under number 7 on the instructions for the BROP, you must provide further details of the shortage, line 30 in "Part 5 – Remarks" of the BROP.

    TTB suggests that you complete reports and gather any supporting information regarding losses and shortages immediately after you identify the discrepancy. Review TTB Industry Circular 2007–1, Shortages of Inventoried Packaged Beer for more information on the proper recording and documentation of shortages.
  5. If you have questions, you may contact the Brewery Applications Section at the NRC. Direct all questions regarding items on the BROP to the Beer Tax Section.

 

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Records Issue 3 —BROP (TTB F 5130.9)

Under 27 CFR 25.297, brewers must prepare and submit BROPs. Brewers must fully support all entries on their excise tax return TTB F 5000.24 with accurate and complete BROPs. The most frequent audit issue concerning BROPs is that brewers consistently file the BROP late or they do not submit it at all. As outlined in the instructions for the BROP, brewers must submit BROPs by the fifteenth day after the end of the reporting period.

Another common issue that TTB auditors cite is the lack of supporting documentation or improper maintenance of supporting documentation.

 

Most Common BROP Mistakes

 

TTB auditors commonly find errors in the following sections of the BROP:

  • Line 2: The brewer’s daily "beer and cereal beverage produced" records to not support the amount entered under "beer produced by fermentation," required under § 25.295.
  • Line 5: Brewers frequently misinterpret the category of "beer that is received in bond from other breweries and pilot brewing plants of same ownership." Breweries bring beer in bond onto their premises from breweries NOT under the same ownership and mistakenly record that transfer of beer on line 5. Beer under bond from another brewery or a pilot brewery may not be brought on to a brewery premises unless all parties are under the same ownership. Taxpaid beer from an outside, non-owned brewer, purchased by and stored on your brewery premises, does not need to be reported on the BROP. Breweries often confuse this line with line 8.
  • Line 8: Brewers frequently misinterpret the category of "beer returned to this brewery after removal from another brewery of the same ownership." "Another brewery under the same ownership" means one corporation owns two or more breweries, or one corporation owns the controlling interest in the other corporation, or the same person owns a controlling interest in each corporation, as defined in 27 CFR 25.181.
    • A brewer may bring taxpaid beer of another brewer’s production onto the brewery premises when the brewer holds a wholesaler’s permit and segregates such beer from non-taxpaid beer, as outlined in 27 CFR 25.24.
    • This line is often confused with line 5, so double check for accuracy.
  • Line 16: "Removed without payment of tax for export" should reflect the amount of beer the brewer exported that month. Many brewers ask whether exported beer counts toward the 60,000-barrel threshold for the reduced rate of tax. Only domestic removals for consumption or sale count toward the 60,000-barrel threshold.
  • Line 18: "Removed without payment of tax for use in research, development and testing." Brewers must support such removals by their daily operational records, required in § 25.292.
  • Line 21: "Beer consumed on premises." Brewers may not consider beer "removed tax determined for use at tavern on brewery premises" as beer "consumed on premises" under line 21. Remember, "beer consumed on premises" has no charge of any type.

 

How to Avoid Mistakes Regarding the BROP

  1. Review 27 CFR 25.291 and 27 CFR 25.292. These regulations outline what records and reports you must keep.
  2. Complete and properly maintain daily records and supporting documentation.
  3. File BROPs on time. You must submit BROPs no later than 15 days after the end of the reporting period. If you do not submit this report, you are in violation of TTB regulations.
  4. Double check the BROP to ensure that you entered information on the correct lines. For more information on how to complete the BROP, see the BROP tutorial on www.TTB.gov.
  5. If your business is a brewpub that produces less than 5,000 barrels per year, consider submitting a Quarterly Brewer's Report of Operations instead of the Brewers Report of Operations, The Quarterly Brewer's Report is a shorter, less complicated form.
  6. If you have questions, you may contact the Beer Excise Tax Group at the NRC.

 

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Records Issue 4 — General Recordkeeping Requirements

The general records that brewers are required to maintain under § 25.291 include:

  • All individual transaction forms, records, and summaries specifically required in part 25;
  • All supplemental, auxiliary, and source data used in the compilation of required forms, records, and summaries, and for preparation of reports, returns, and claims; and
  • Copies of notices, reports, returns, approved applications, and other documents relating to brewery operations and transactions.

The records may consist of the brewer's commercial documents, rather than records prepared expressly to meet the requirements of part 25, but only if the commercial records:

  • Contain all the details required under part 25;
  • Are consistent with the general requirements of clarity and accuracy; and
  • Do not result in difficulty in their examination.

 

Most Common General Recordkeeping Mistakes

 

Most general recordkeeping mistakes occur because the brewer:

  • Does not maintain bills of lading;
  • Does not keep a complete summary records;
  • Does not maintain or make available book inventory records;
  • Has inventory sheets that do not accurately reflect operations within the brewery; and
  • Does not properly explain beer shortages.

 

How to Avoid General Recordkeeping Problems

  1. Review 27 CFR 25.291. This regulation discusses general record requirements.
  2. Maintain accurate bills of lading and other supporting documentation for all shipments. Complete daily records for all brewery transactions and properly maintain those records. (See Records Issue 1—Daily Records of Operations.)
  3. Make certain that your inventory records are complete and available to TTB officers. (See Records Issue 2—Inventory Records and Controls.)
  4. Maintain copies of all notices, reports, returns, approved applications, and supporting documentation that relate to brewery operations and transactions. (See Records Issue 5 — Retention and Preservation of Records.)
  5. Verify that entries your brewery makes on daily records and inventories correspond to entries on the BROP.
  6. If you have questions, you may contact the Brewery Applications Section at the NRC.

 

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Records Issue 5 — Retention and Preservation of Records

Under 27 CFR 25.300, brewers must prepare and maintain records necessary for production and removals at the brewery where the operation or transaction occurs and make these records available to TTB. Brewers may store records off the brewery’s premises, but they must obtain TTB approval to do so. Brewers must maintain records required in part 25 for a period of "not less than three years".

 

Most Common Record Retention and Preservation Issues

 

TTB auditors often find that:

  • Records are not retained for the required 3-year retention period.
  • Brewers do not retain original commercial records that support removals, such as invoices, bills of lading, receiving and inspection reports, and sales memorandum.
  • Brewers destroy paper and electronic data during or before the end of the 3-year preservation requirement.
  • Brewers store records offsite without TTB approval.

How to Avoid Problems Related to Record Retention and Preservation

 

  1. Review 27 CFR 25.300. This regulation lists all records required under part 25 (electronic and paper) that you must maintain at the brewery premises.
  2. Retain all records and documents required under part 25 (including daily summaries, inventory sheets, bills of lading, and invoices) for a minimum of 3 years.
  3. Obtain an approved variance from § 25.300(a) before you store records off premises. Ensure that records stored offsite will be available for inspection within 24 hours.
  4. If you have questions, you may contact the Brewery Applications Section at the NRC.

 

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Records Issue 6 — Penalties for Failure to Maintain Records

The Internal Revenue Code provision under 26 U.S.C. 5672 describes the penalties for failure to maintain records. It provides that if a brewer fails or refuses to keep the records and file the returns required in part 25, or refuses to permit any TTB officer to inspect such records, the Government may fine the brewer up to $1,000, or seek imprisonment of up to 1 year, or both, for each such offense.

 

How to Avoid Penalties for Improper Recordkeeping

 

  1. Create a reliable system for filing and maintaining required documents, records, and forms.
  2. If you are unsure whether you need to maintain a specific document, you may contact the Brewery Applications Section at the NRC.

 

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Production and Inventory Issue 1 — Meaning of Terms

TTB is aware that some terms in our regulations confuse brewers, such as losses, shortages, "removed for consumption or sale," and "executed under penalties of perjury." Brewers can find the meanings of these and other terms in 27 CFR 25.11.

Losses and Shortages

Section 25.11 defines losses as "known quantities of beer lost due to breakage, casualty, or other unusual cause." It defines shortage as "an unaccounted for discrepancy (missing quantity) of beer disclosed by physical inventory." Brewers must know the difference between losses and shortages. No tax liability exists for legitimate losses, but that may not be true for shortages. Since shortages are unexplained discrepancies, brewers must first establish that they did not remove beer for consumption or sale before relieving it of the liability for tax. TTB auditors often find that Brewers:

  • Report losses on the shortage line of the BROP;
  • Report shortages on the losses line of the BROP;
  • Do not report losses or shortages at all when they occur; or
  • Incorrectly net losses against overages.

Removed for consumption or sale

Section 25.11 defines "removed for consumption or sale" as the sale and transfer of possession of beer for consumption at the brewery, or any removal of beer from the brewery, except under certain circumstances when the law authorizes beer to be removed without the payment of tax. Subpart L–Removals without Payment of Tax (27 CFR 25.181 through 25.207) in the TTB regulations provides limited scenarios when brewers may remove beer from the premises without payment of tax. They are:

If a brewer removes beer from the premises for any reason other than those listed above, TTB considers the beer removed for consumption or sale. Brewers must report the amount of beer that they remove for consumption or sale for the period on line 14 of the BROP.

Executed Under Penalties of Perjury

Under § 25.11 (and 27 CFR 25.299), a document is "executed under penalties of perjury" if a brewer signs it with the prescribed declaration under the penalties of perjury as provided on or with respect to the return, claim, form, or other document, or when no form of declaration prescribes the following declaration: "I declare under the penalties of perjury that this (insert type of document such as statement, report, certificate, application, claim, or other document), including the documents submitted in support thereof, has been examined by me and, to the best of my knowledge and belief, is true, correct and complete."

 

How to Avoid Problems Related to These Terms

 

  1. Review 27 CFR 25.11. This regulation provides the meanings of key terms that you should know.
  2. Document all removals of beer and cereal beverages from the premises.
  3. When you remove beer for consumption or sale, e.g., any removal of beer from the brewery that is not covered in Subpart L–Removals without Payment of Tax, enter the amount on line 14 of the BROP.
  4. When an inventory reveals a shortage, record it on line 31 of the BROP as "physical inventory disclosed a shortage." Under 27 CFR 25.291 and 27 CFR 25.297 "a written explanation must be given and this explanation must establish that the questionable beer was not removed for consumption or sale."
  5. When losses occur due to theft, destruction, etc., enter it on line 30 of the BROP as "recorded losses, including theft."
  6. As 27 CFR 25.299 requires, include a signed "under penalties of perjury" statement when part 25 requires a return, form, or other document, or when the instructions of a return, form, or other document require the statement.
  7. If you have questions, you may contact the NRC.

 

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Production and Inventory Issue 2 — Beer Returned to the Brewery

27 CFR 25.211 authorizes the brewers to return beer, which is produced in the United States and on which the brewer has paid or determined the tax, to any brewery that the brewer owns. When the brewer’s beer is returned to the premises, the brewer must determine the actual quantity of beer received, expressed in barrels, by:

  • Referring to the label for cases or bottles;
  • Weight or by other accurate means for kegs or cases containing less than the original contents;
  • Balling and determining alcohol content of returned keg beer, unless the keg is equipped with tamper-proof fittings; or
  • Weighing individual packages and subtracting package weight, or by weighing accumulated beer and subtracting tare weight of dumpsters, pallets, packages and the like.

For beer returned to the brewery, the brewer's daily records must show:

  • The date;
  • The quantity of beer returned;
  • If the title to the beer has passed, the name and address of the person returning the beer; and
  • The name and address of the brewery from which the beer was removed, if different from the brewery to which returned.

Brewers need supporting records of returned beer, such as invoices, credit memoranda, or other commercial papers. These records must differentiate between beer returned to the brewery from which it removed, and beer returned to a brewery different from the one from which a brewer removed it.

 

Most Common Errors with Returned Beer

 

The most common errors that TTB notes are that:

  • Brewers fail to record and maintain the detailed information on returned beer required in 27 CFR 25.211.
  • Brewers fail to determine the actual quantity of keg beer returned, or they fail to check the balling and alcohol content of returned kegs. TTB has found many times that warehouse personnel handle, account for, and report returned beer without determining contents in the kegs, or the brewer estimates the amount of beer in returned kegs by unsound methods (for example, banging on the side of the tank to determine fluid level).
  • The brewer takes an offset for returned beer under 27 CFR 25.159 when it is not permissible. If taxpaid beer is returned and an offset is not permissible, the brewer must make the adjustment on the next Federal excise tax return (TTB F 5000.24).

 

How to Avoid Problems Related to Returned Beer

 

  1. Review 27 CFR 25.211. This regulation lists the detailed information required when beer is returned to the brewery.
  2. Record the actual quantity of keg beer returned and determine the balling and alcohol content of returned kegs using proper methods.
  3. Ensure that you properly report returned beer that cannot be considered an offset on your next Federal excise tax return (TTB F 5000.24 ) and BROP (line 8) and that it is not netted against other items.

    As provided in 27 CFR 25.159, offsets are not permissible when:
    • The brewer was indemnified by insurance or otherwise in respect of the tax;
    • The brewer does not issue credit to the customer for the tax on the returned beer within 30 days of the return of the beer. If the brewer does not timely credit the customer after the offset or the brewer takes a deduction, the brewer must make an increasing adjustment on the next tax return; or
    • When beer is returned to a brewery location other than the one from which it was removed (see 27 CFR 25.213(a)).
  4. If you have questions, you may contact the Beer Excise Tax Group at the NRC.

 

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Production and Inventory Issue 3 — Tanks

27 CFR 25.35 states that every tank, vat, cask, or other container that a brewer uses or intends to use as a receptacle for wort, beer, or concentrate produced from beer, must be "durably marked with a serial number and capacity." Tanks must be "equipped with a suitable measuring device" or, alternatively, provide meters or other suitable portable devices for measuring contents of tanks.

 

Most Common Tank Markings Issue

 

Brewers sometimes fail to mark all tanks, vats, casks, or other types of containers that they use or intend to use in the production and storage of beer with a unique serial number and the container’s capacity. For example, TTB finds that brewers often fail to durably mark open top tanks and kettles.

 

How to Avoid Tank Markings Issues

 

  1. Review 27 CFR 25.35. It provides the minimum marking and measuring device requirements for tanks, vats, casks, and other containers.
  2. Make sure all containers used for storage and production of beer (tanks, vats, casks, open top tanks, kettles, etc.) are durably marked with a unique number and the container’s capacity.
  3. If you have questions, you may contact the Tax Audit Division office nearest to you.

 

 

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Production and Inventory Issue 4 — Testing and Measuring Devices

Every brewer must periodically test and adjust or repair all measuring devices they use to measure beer, such as meters or gauge glasses. Under 27 CFR 25.42, records of such tests must be available to TTB officers for inspection.

Records of these tests of measuring devices require the following information:

  • Date of test;
  • Identity of meter or measuring device;
  • Result of test; and
  • Corrective action taken, if necessary.

The allowable variation for beer meters as established by testing may not exceed ±0.5 percent. If a meter test discloses an error in excess of the allowable variation, the brewer is required to immediately adjust or repair the meter.

 

Most Common Testing and Measuring Devices Issues

 

Below are some of the common errors made by brewers:

  • The brewer does not test and recalibrate all their testing and measuring devices (such as flow meters, site glass gauge, centrifuge magmeter, brew house micro-motion meter, D.E. filter micro-motion meter, keg line or bottle shop magmeter, etc.) on a periodic basis. For example, brewers fail to test flow meters measuring beer transferred from the fermenters to the brite tanks or fail to test site glass gauges used to measure beer in tax determination tanks. TTB has found that brewers fail to properly calibrate the "mobile" site glass and flow meters brewers use to gauge non-malt beverage in storage tanks.
  • The brewer does not maintain records to support periodic testing of measuring devices.
  • Paragraph (b) of § 25.42 provides that beer meters, as established by testing, may not exceed ±0.5 percent variance. If a meter test discloses an error in excess of the allowable variation, the brewer must immediately adjust or repair the meter. Adjustments need to reduce the error as near to zero as practicable.

How to Avoid Measurement and Testing Devices Issues

 

  1. Review 27 CFR 25.42. This regulation provides tests and documentation requirements for measuring equipment.
  2. Test and recalibrate (if necessary) all measuring and testing devices used in the brewery on a periodic basis. Bring the equipment within the ±0.5 percent allowable tolerance.
  3. Make sure to keep records with the proper detailed information of all device tests (see 27 CFR 25.42).
  4. The TTB regulations do not define "periodic" testing. Instead, consult the manufacturer’s recommendations or rely on good commercial practices to determine when to test your measuring devices. TTB suggests that you perform calibration testing at least once each year.
  5. If you have questions, you may contact the Tax Audit Division office nearest to you.

 

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Production and Inventory Issue 5— Storage of Beer

A brewer may not store beer of that brewer's own production, on which the tax has been paid or determined, at his or her brewery. The exception to this rule is when a brewer stores taxpaid beer in an approved alternate use tavern area (see 27 CFR 25.25) or when the brewer returns taxpaid beer to a brewery other than the one from which the brewer removed it, when both breweries are under the same ownership (see 27 CFR 25.213). Under these two exceptions, the brewer must separate the taxpaid beer from non-taxpaid beer and clearly identify it as beer for use in the tavern or returned beer.

Brewers may store beer produced by other brewers at their breweries under the following conditions:

  • The brewer must segregate taxpaid beer from non-taxpaid beer;
  • The brewer may be required to hold a wholesaler’s or importer’s basic permit under 27 CFR part 1 and keep records of the taxpaid beer under 27 CFR part 31;
  • The brewer may store taxpaid beer in packages; and
  • The brewer may not make changes to or re-label taxpaid beer, or enter taxpaid beer on brewery summaries or inventories.

 

Most Common Beer Storage Issues

 

The most common storage issues occur when brewers fail to:

  • Segregate taxpaid beer from non-taxpaid beer. For example, the brewer stores taxpaid beer with non-taxpaid beerin the tavern service room or moves taxpaid beer onto a bonded area to repackage or re-case before shipment; and
  • Identify beer as taxpaid on the premises.

How to Avoid Beer Storage Issues.

 

  1. Review 27 CFR 25.24. This regulation outlines when and how you may store taxpaid beer on the premises.
  2. Consider temporarily marking an area where taxpaid beer is stored or designating a permanent area on the premises where taxpaid beer will always be stored.
  3. If you have questions, you may contact the Tax Audit Division office nearest you.

 

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Tax Issue 1 — Excise Tax Returns

27 CFR 25.164 requires every brewer to file a Federal Excise Tax Return TTB F 5000.24 with TTB, regardless of whether a tax liability exists, and payment of the full amount of tax required for beer removed for consumption or sale during the period covered by the return. If the brewery does not qualify for deferred payment of the tax, then they must prepay the tax (see 27 CFR 25.175).

Semimonthly Tax Returns

Except in the case of a taxpayer who qualifies for quarterly return periods, all taxpayers must file semimonthly returns for deferred payment of tax. All months except September have two return periods and September has three. Semimonthly return periods are the first day of each month through the 15th day of that month and the 16th day of the month through the last day of the month. For September, the three return periods are the 1st - 15th; 16th - 26th; and 27th - 30th (see 27 CFR 25.164a).

Brewers must file semimonthly tax returns and remit payment for each return period, no later than the 14th day after the last day of the return period.

The following tables summarize the due dates for filing semi-monthly returns:

For return periods ending on--

Returns and payments are due on--

The 15th of the month

The 29th of the same month

The last day of the month

The 14th of the next month

September Return periods for Electronic Fund Transfer (EFT) filers

For the return period ending on--

Returns and payments are due on--

The 15th of September

The 29th of September

The 26th of September

The 29th of September

The 30th of September

The 14th of October

September Return periods for non-EFT filers

For the return period ending on--

Returns and payments are due on--

The 15th of September

The 28th of September

The 25th of September

The 28th of September

The 30th of September

The 14th of October

TTB considers the date of the official postmark stamped on the envelope as the date of delivery of the return and the date of delivery of the remittance, if enclosed with the return.

Quarterly Tax Returns

A taxpayer who "reasonably expects" (see 27 CFR, 25.164(c)(1)) to be liable for less than $50,000 in Federal beer excise taxes for the current calendar year, and who was not liable for more than $50,000 in Federal beer excise taxes in the preceding calendar year, may choose to file quarterly. The penal sum of the bond that is required must be 29 percent of the projected tax liability for the calendar year.

Brewers filing quarterly returns must submit returns and remit payment for the following return periods:

For the return period--

Returns and payment are due on--

January 1st to March 31st

April 14th

April 1st to June 30th

July 14th

July 1st to September 30th

October 14th

October 1st to December 31st

January 14th

Filing and Payment Methods

Brewers may file returns electronically through TTB’s Pay.gov online payment system. (See TTB’s Pay.gov Excise Tax Guide.) Brewers also may make excise tax payments by electronic funds transfer (EFT) via Fedwire. (See TTB Procedure 2011–1.)

A taxpayer who, in a calendar year, was liable for a gross amount of $5 million or more in Federal excise taxes must use a financial institution to make tax payments via EFT during the succeeding calendar year (see 27 CFR 25.164(c)(2)(v)). TTB will not accept tax payments of cash, check, or money order from taxpayers required to make remittances via EFT.

 

Most Common Excise Tax Return Issue

 

The most common tax return issue that TTB finds is that brewers file tax returns after the due date. TTB is likely to contact brewers who file late for compliance violations.

 

How to Avoid Excise Tax Returns Issues

 

  1. Review TTB regulations 27 CFR, 25.164, 27 CFR 25.164a and 27 CFR 25.175. These regulations outline whether you must file an excise tax return semimonthly or may file quarterly, and when those returns are due.
  2. File excise tax returns on time. Determine how you are required to file (semimonthly or quarterly) and be consistent.
  3. If you have questions, you may contact the Beer Excise Tax Group at the NRC.

 

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Taxes Issue 2 — Determination of Tax on Keg Beer, Bottled Beer and Rate of Tax

Under 27 CFR 25.151, brewers who produce more than 2,000,000 barrels of beer per year must pay the tax rate of $18 for every barrel containing not more than 31 gallons as authorized in 27 CFR 25.156. This rate applies to all beer brewed or produced and removed for consumption or sale within the United States and all beer imported into the United States. (For regulations regarding importation of alcohol beverage products, see 27 CFR part 27.)

Brewers who produce less than 2,000,000 barrels per year (except for brewers who are part of a controlled group with annual combined barrel production exceeding 2,000,000 barrels, as defined in 27 CFR 25.152) may pay a reduced tax rate of $7 per barrel on the first 60,000 barrels of beer removed for consumption or sale within a calendar year.

Barrel Equivalent Conversion Factors

Under 27 CFR 25.156, the authorized fractional parts of a barrel are whole barrels, halves, thirds, quarters, sixths, and eighths. The following keg sizes are also authorized at the stated barrel equivalents:

Size of keg

Barrel equivalent

5 gallons

0.16129

30 liter

0.25565

50 liter

0.42608

When removing bottled beer, brewers should refer to the chart in 27 CFR 25.158 to calculate barrel equivalents. The barrel equivalent is based on the size of the bottle and the number of bottles per case. If a bottle size or case configuration is not listed in the regulations, the brewer must request a barrel equivalency from the NRC prior to removing the beer. Failure to contact the NRC before removing the beer could result in penalties and interest.

For U.S. measure bottles (fluid ounces), the barrel equivalent for cases is calculated as follows:

Net content of bottle (in ounces) x number of bottles per case = Total ounces per case
Total ounces per case ÷ 128 = Gallons per case
Gallons per case ÷ 31 = Barrel equivalent conversion factor

12 oz bottle / 24 bottles per case

12 oz

x

24

=

288 oz

288 oz

÷

128

=

2.25 gal.

2.25 gal.

÷

31

=

0.07258

For metric measure bottles (liters), the barrel equivalent for cases is calculated as follows:

Net content of bottle (in liters) x number of bottles per case = Total liters per case
Total liters per case x .264174 = Gallons per case
Gallons per case ÷ 31 = Barrel equivalent conversion factor

1L bottle / 12 bottles per case

1 L

x

12

=

12 L

12 L

x

.264174

=

3.17 gal.

3.17 gal.

÷

31

=

0.10226

Computation of Taxes

When removing beer from the premises in kegs or bottles, brewers must compute quantities to five decimal places (drop any number after the fifth decimal place). Brewers must total the quantities computed for any one day, round to two decimal places, and calculate and pay the tax on the rounded sum.

 

Most Common Tax Determination Issues

 

TTB auditors find that some brewers:

  • Fail to record taxable removals;
  • Fail to pay tax on removals of beer for promotional events and samples;
  • Inappropriately record and pay tax on beer consumed at the taxpayer's retail operations;
  • Use incorrect conversion factors in calculating the barrel equivalent amounts for net removals or rounding each transactional amount to two decimal places instead of rounding to the required five decimal places. For example, brewers often use incorrect conversion factors for 12 oz, 22 oz, and 750 ml bottle sizes, and 1/6 barrel kegs. 1/6 barrel kegs contain 5.16666 gallons, but brewers often use the conversion factor for a 5 gallon keg (0.16129); and
  • Use incorrect computations. For example, some sales registers automatically and inappropriately round each transactional amount to two decimal points, so brewers must ensure that they convert all sales register transactions to five decimal points.

 

How to Avoid Tax Determination Issues.

 

  1. Review 27 CFR 25.156, 27 CFR 25.158, and 27 CFR 25.151. These regulations provide the amount of tax and some of the barrel conversion factors. You must request the barrel equivalency from the NRC before removing beer in cases or container sizes that are not listed in 27 CFR 25.158.
  2. The tax rate for beer removed for consumption or sale is $7 per barrel on the first 60,000 barrels, if the brewery (or "controlled group") produces less than 2,000,000 barrels per year.
  3. Once the brewery meets the 60,000 barrel threshold in the calendar year, the tax rate for beer removed for consumption or sale is $18 per barrel.
  4. When using the conversion factor to calculate barrel equivalent amounts, compute the total quantity to five decimal places, dropping any numbers after that decimal place.
  5. If you have questions or need a barrel equivalency approved, you may contact the Beer Excise Tax Group at the NRC.

 

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Taxes Issue 3 — Time and Determination of Tax Payment

27 CFR 25.159

Brewers must determine tax on beer at the time of its removal for consumption or sale and must record these totals on the BROP and submit tax payment with the brewer’s Federal tax return.

The quantity of beer returned to the same brewery from which it was removed may be taken as an offset against, or deducted from, the total quantity of beer removed for consumption or sale from that brewery on the day that the beer is returned. A brewer may not take an offset or deduction for returned beer when they are indemnified by insurance for the tax or when the brewer does not issue credit to the customer for the tax on the returned beer within 30 days of the return of the beer.

 

Most Common Time and Determination of Tax Payment Issues

 

The most common errors that brewers make when they determine tax payments are:

  • Brewers make decreasing tax adjustments on their excise tax returns for taxpaid beer that was not physically returned to the brewery (such as beer in the marketplace that was destroyed offsite).
  • Brewers fail to properly report beer returned to the brewery on line 7 of the BROP.
  • Brewers determine the tax during production instead of when the brewer actually removes the beer from the premises for consumption or sale. While TTB regulations require brewers to keep daily and monthly records of "beer on hand," there is no tax payment due until the beer is removed from the premises for consumption or sale.
  • Brewers often transfer beer without payment of tax to other brewers who are not under the same ownership.
  • Brewers remove beer from their bonded premises for storage purposes without paying the appropriate tax. For example, they remove beer for repackaging into a variety pack.

How to Avoid Time and Tax Determination Issues

 

  1. Review 27 CFR 25.159. This regulation says that tax on beer is determined when the brewer removes beer from the premises for consumption or sale. The regulation also says that brewers may offset beer returned to the same brewery from which it was originally removed (line 7 of the BROP).
  2. You must pay tax when you remove beer from the premises for consumption or sale.
  3. If you have questions, you may contact the Beer Excise Tax Group at the NRC.

 

 

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Taxes Issue 4 — Penalties for Failure to File Returns

Under 27 CFR part 70, brewers who fail or refuse to keep the records or file the returns required by TTB regulations, or refuse to allow TTB to inspect records, may be fined not more than $1,000, or imprisoned not more than 1 year, or both, for each offense.

 

How to Avoid Penalties

 

  1. Review Subpart U—Records and Reports in 27 CFR part 25 . This subpart outlines every detail of the brewery operation that you must record and maintain.
  2. If you have questions, you may contact the Beer Excise Tax Group at the NRC .

 

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Reporting Issue 1 — Brewer’s Report of Operations, TTB F 5130.9 and Brew Pub Report of Operations, TTB F 5130.26

Under 27 CFR 25.297, a brewer who produces 10,000 or more barrels of beer per calendar year, must prepare and submit the BROP monthly. Brewers who produce less than 10,000 barrels of beer per calendar year and do not file a Quarterly Brewer's Report of Operations may file the BROP quarterly. Brewpubs that produce 5,000 barrels of beer per calendar year or less and do not bottle or keg their beer for removal from their breweries may report their operations on the Quarterly Brewer's Report of Operations TTB F 5130.26.

Brewers must notify TTB before the calendar quarter in which they want to begin submitting quarterly filings. To elect quarterly filing, brewers may add a comment in the "Remarks" section of the BROP indicating that they intend to start filing quarterly. Brewers beginning business and intending to file quarterly must state under the "Remarks" section of their initial monthly BROP that their annual production of beer is unlikely to exceed 10,000 barrels.

If the brewer determines that the brewer will exceed 10,000 barrels for a calendar year in any month, the brewer must file a BROP for that month and for all subsequent months of the calendar year.

Brewers must retain copies of all BROPs they submit to TTB.

 

Most Common BROP Issues

 

One of the most common errors that brewers make is that they file their BROPs late or not at all.

Below are the sections of the BROP where TTB finds errors most frequently:

  • Line 2: Brewers fail to enter a correct amount for beer "produced by fermentation." Brewers may not include in this amount beer they did notproduce on their premises, such as beer they received from other breweries, beer in cellars, or beer returned to the brewery.
  • Line 8: Brewers incorrectly report receipts of beer from other breweries that are not under the same ownership (This line is for beer returned to the brewery after removal from another brewery under the same ownership).
  • Line 11: Brewers improperly use line 11 (physical inventory disclosed overage) and line 31 (physical inventory disclosed shortage) to balance an inventory discrepancy.
  • Line 14: Brewers must enter taxable removals under line 14. This is a crucial amount because tax is determined on this amount. Brewers may not enter the difference between taxable removals and taxpaid or tax-determined beer returned to the brewery (which brewers must report on line 7) on this line.
  • Line 15: Brewers often improperly report the "on premises" consumption amount (line 21) as a "tavern removal" amount under line15. Brewers also fail to report transfers to the tavern appropriately on line 15b. "Tavern" means a portion of brewery premises where the brewer sells beer to consumers (27 CFR 25.25). Beer sold from a tavern is taxable. Beer consumed on premises without charge, for example in a tasting room, is not taxable.
  • Line 16: Brewers who report beer removed without payment of tax for export often do not enter the correct amount of beer removed for export during the reporting period. In other cases, brewers improperly enter the difference between beer removed for export and beer that was exported and returned to the brewery.
  • Line 18: Brewers may not estimate the amount of beer removed without payment of tax for use in research, development, or testing. Brewers must ensure that all such removals from the brewery without payment of tax are accurately reported as exact amounts or TTB may treat the discrepancy as a taxable removal.
  • Lines 30 and 31: Brewers often fail to report inventory shortages or they report inventory shortages incorrectly. Brewers reporting losses on the BROP must ensure that they report on inventory records the exact amount revealed when taking inventory. Some brewers confuse losses (such as losses occurring during cellar operations or theft), which they must report on line 30, with "Physical inventory disclosed as a shortage," which they must report on line 31. Shortages are revealed when the inventory count is different from book inventory.

    Brewers are not required to explain inventory shortages that occur during cellar operations under "Part 5 – Remarks." However, as part of the brewer’s explanation required under "Part 5 – Remarks," brewers must report whether the shortage of finished goods was in cans, bottles, or kegs. Brewers who report shortages on line 31 must enter the amount in barrels, and not by package type (cans, bottles, or kegs). For more discussion on losses and shortages, see Records Issue 2 — Inventory Records.

 

How to Avoid BROP Issues

 

  1. Review 27 CFR 25.297. This regulation requires you to submit either a BROP monthly or quarterly.
  2. Make sure that you complete, sign, and file the BROP on time (submit it by the fifteenth day after the end of its reporting period).
  3. Put the total amount of an item rather than a net amount on the BROP.
  4. When you fill out the Brewer’s Report of Operations, be aware of the differences between losses (Line 30) and shortages (Line 31). See Records Issue 2 — Inventory Records.
  5. If you have questions, you may contact the Beer Excise Tax Group at the NRC.

 

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Reporting Issue 2 — Notice of Intent (NOI) to Destroy Beer

Under 27 CFR 25.222, a brewer must give written notice (Notice of Intent (NOI)) to TTB if that brewer intends to destroy taxpaid or tax-determined beer at a location other than one of the brewer's breweries. The brewer should give notice on the brewery’s letterhead.

  • Brewers must serially number and sign the notice "under penalties of perjury" as defined in 27 CFR 25.11.
  • The brewer must specify the date of destruction and mail the NOI to TTB not less than 12 days before that date.
  • A brewer’s NOI must also include the following information:
    • The quantity of beer expressed as:
      • The number of cases and the number and sizes of bottles within the cases, and the actual quantity of beer in barrels; or
      • The number and sizes of kegs and the actual quantity of beer, in barrels. When destroying kegs containing less than the full contents, the brewer must determine the actual content of beer by weight or by other accurate means;
    • The date on which the brewer received the beer for destruction;
    • A statement that the brewer has fully paid or determined the tax on the beer and the rate at which the brewer paid or determined the tax on the beer;
    • If the title of the beer has passed, the name and address of the person returning the beer; and
    • The location at which the brewer desires to destroy the beer and the reason for not returning the beer to the brewery.

 

Most Common NOI Issues

 

The most common errors on NOIs occur because brewers:

  • Fail to notify TTB of their intent to destroy beer off premises;
  • Fail to sign the NOI;
  • Enter amounts of total barrels destroyed that do not match the actual quantity destroyed;
  • Estimate the amount of beer returned in opened kegs instead of determining the actual content of beer by weight or other accurate means;
  • Fail to provide the name and address of the person(s) holding the title of the returned beer to be destroyed;
  • Submit multiple NOIs without serially numbering them;
  • Fail to state the date the brewer received the beer at the destruction location;
  • Fail to state the location at which the brewer will destroy the beer;
  • Fail to state the reason for not returning the beer to the brewery; and
  • Fail to maintain required information and supporting documents regarding voluntary destructions that are required in order to obtain an adjustment or refund of tax paid, as outlined under Subpart T (27 CFR 25.281 through 25.286).

 

A brewer may request a variance, which may allow the brewer to destroy a maximum number of barrels of returned beer off premises without obtaining prior approval for each destruction. However, the brewer with an approved variance must record and maintain records that support such destructions, as outlined in 27 CFR 25.222.

 

How to Avoid NOI Issues

 

  1. Review 27 CFR 25.222. This regulation outlines the information required on NOIs.
  2. Make sure that the NOI contains all the information required in § 25.222:
    • Serial number;
    • Dates of receipt and destruction;
    • Quantity in barrels;
    • Name of the person returning the beer—if the title to the beer has passed;
    • Location of destruction; and
    • Statements that the beer was taxpaid and the reason for destruction.
  3. Sign NOIs before you mail them to TTB. You are signing the NOI "under penalty of perjury."
  4. Properly record and maintain records that support destructions, under Subpart T (27 CFR 25.281 through 25.286), in order to obtain an adjustment or refund of tax paid.
  5. If you have questions, you may contact the Beer Excise Tax Group at the NRC.

 

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Reporting Issue 3 — Liquor Dealer Registration and Recordkeeping

On August 10, 2005, President Bush signed into law the "Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users," Public Law 109–59, which permanently repealed payment of the special occupational taxes for several alcohol beverage related industry members, among them brewers.

Although Congress repealed the payment of occupational tax, recordkeeping and registration requirements remain for brewers, who also operate as "liquor dealers." A liquor dealer is a person who sells, or offers for sale, any alcohol product (distilled spirits, wines, and/or beer) fit for beverage use.

While the law suspended payment of occupational tax for the period of July 1, 2005 to June 30, 2008, TTB still required brewers to register and keep appropriate records during that time. If brewers did not maintain registration during this time, they should contact the NRC.

 

How to Avoid Liquor Dealer Registration and Recordkeeping Issues

 

  1. Review 27 CFR 25.111 through 27 CFR 25.114. These regulations outline the registration and recordkeeping requirements for brewers.
  2. Maintain records of transactions not covered in the brewery records, such as retail sales of wine or distilled spirits in a restaurant at the brewery, or operations as a wholesale dealer in wine or distilled spirits, under 27 CFR part 31.
  3. If you have questions, you may contact Brewery Applications Section at the NRC.

 

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TTB Forms Used in this Brewer’s Guide

Form number

Title of form:

TTB F 5000.8

Power of Attorney

TTB F 5000.9

Personal Questionnaire - Alcohol and Tobacco Products

TTB F 5000.18

Change of Bond (Consent of Surety)

TTB F 5000.24

Excise Tax Return Launch Form Tutorial

TTB F 5000.29

Environment Information

TTB F 5000.30

Supplemental Information on Water Quality Considerations Under 33 U.S.C 1341(a)

TTB F 5100.1

Signing Authority for Corporate and LLC Officials

TTB F 5100.31

Application for Certification/Exemption of Label/Bottle Approval

TTB F 5100.51

Formula and Process for Domestic and Imported Alcohol Beverages

TTB F 5130.6

Drawback on Beer Exported

TTB F 5130.9

Brewer’s Report of Operations
Need Help with Form 5130.9? Try our helpful tutorial!
Sample Brewer’s Report

TTB F 5130.10

Brewer's Notice

TTB F 5130.12

Beer for Exportation

TTB F 5130.22

Brewer's Bond

TTB F 5130.23

Brewer's Bond Continuation Certificate

TTB F 5130.25

Brewer's Collateral Bond

TTB F 5130.26

Quarterly Brewer's Report of Operations

TTB F 5130.27

Brewer's Collateral Bond Continuation Certificate

TTB F 5620.8

Claim - Alcohol, Tobacco and Firearms Taxes
Need Help with Form 5620.8? Try our helpful tutorial!

 

TTB Regulations Cited in This Brewer’s Guide

TTB Regulations

27 CFR part 25

Beer regulations

27 CFR 25.11

Meaning of terms

27 CFR 25.24

Storage of beer

27 CFR 25.25

Operation of a tavern on brewery premises

27 CFR 25.35

Tanks

27 CFR 25.42

Testing of measuring devices

27 CFR 25.111- 27 CFR 25.114

Subpart I - Dealer Registration and Recordkeeping

27 CFR 25.151

Rate of tax

27 CFR 25.156

Determination of tax on keg beer

27 CFR 25.158

Tax computation for bottled beer

27 CFR 25.159

Time of tax determination and payment; offsets

27 CFR, 25.164

Quarterly and semimonthly returns

27 CFR 25.164a

Special September rule for taxes due by semimonthly return.

27 CFR 25.175

Prepayment of Tax

 

Subpart L–Removals Without Payment of Tax

27 CFR 25.211

Beer returned to brewery

27 CFR 25.213

Beer returned to brewery other than that from which removed.

27 CFR 25.222

Notice of brewer

27 CFR 25.281 through 25.286

Subpart T - Refund or Adjustment of Tax or Relief From Liability

27 CFR 25.291 through 25.301

Subpart U- Records and Reports

27 CFR 25.291

Records

27 CFR 25.292

Daily records of operations

27 CFR 25.294

Inventories

27 CFR 25.297

Brewer's Report of Operations, Form 5130.9

27 CFR 25.299

Execution under penalties of perjury.

27 CFR 25.300

Retention and preservation of records

27 CFR 70.1 through 70.803

Subpart 70--Procedure And Administration


Additional Resources for Breweries

General Resources:

 

 

Tutorials for TTB Forms:

 

Pay.gov User Guides:

TTB G 2012-1
OPR: TAD
May 17, 2012

Page last reviewed/updated: 02/13/2017

TTB
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