We’re in the season for sending in quarterly and annual Reports of Wine Premises Operations (TTB form 5120.17) and TTB Excise Tax Returns (TTB form 5000.24) again, so we thought it would be a good time for a brush up on TTB recordkeeping and reporting requirements. As an arm of the Treasury Department, TTB functions principally to protect and collect federal revenue. Recordkeeping and reporting are their primary tools for carrying out this function.
TTB welcomes being contacted by phone and email. They want to work with wineries to ensure they have the tools to comply with agency recordkeeping and reporting requirements. This is important in that over the past few years, TTB has begun auditing wineries with greater frequency. The audit teams seem to have become more aggressive, in recent years, in identifying errors in recordkeeping and reporting. Things that might have gone unnoticed in past audits have now become the source of fines and penalties. This can be frustrating, especially for wineries that have operated relatively incident free for many years. Compromises between $10,000 and $50,000 are no longer uncommon for smaller wineries.
Bearing this in mind, it might be advantageous to take a look at your TTB compliance practices, particularly with respect to TTB recordkeeping and reporting.
What are the basic small winery reporting requirements?
Wineries must file both Reports of Wine Premises Operations (TTB form 5120.17) and Excise Tax Returns (TTB form 5000.24).
Operations reports (5120.17s) must be filed either monthly, quarterly, or annually, depending on your expected production and excise tax liability. In accordance with TTB regulations, the default position is that wineries must file monthly reports. Wineries that have less than 60,000 gallons of wine on hand at any given time (bulk and bottled), and who pay less than $50,000 in excise tax annually are eligible to file quarterly operations reports. Wineries that have less than 20,000 gallons of wine on hand at any given time (bulk and bottled), and who pay less than $1,000 in excise tax annually are eligible to file annual operations reports.
“Eligibility” does not mean that you can automatically file quarterly or annual reports. Wineries are obligated to explicitly notify TTB of whether they intend to file operations reports by calendar quarter or calendar year. Wineries can do so either by using a letter notice before commencing operations for a given year, or by indicating their intent in the Remarks section of form 5120.17 (Section X). According to form 5120.17, operations reports are due “by the [15th] day after the end of the report period,” i.e., after the end of the calendar quarter or calendar year. For a basic tutorial on 5120.17, go to http://www.ttb.gov/wine/new_guide.shtml.
The operations report is not particularly difficult to fill out but you must do so carefully and ascertain that you have good justifications for each and every entry. You must report every drop that comes into your bond: either through bond to bond transfers, through production of wine, or even through volume increases resulting from sweetening or fining. You must justify that you have that volume of wine in inventory (bulk or bottled), or that you removed it from bond (as a taxpaid removal or bond to bond transfer). There are some allowances for evaporation or other losses, but ordinarily bulk and bottled losses must be recorded. You must be able to trace back all of your entries to winery records. Remember that the auditor does not spend every day in your winery and does not understand shortcuts you might take. So make your recordkeeping as transparent and direct as possible.
Excise tax returns (5000.24s) are generally filed either semi-monthly (twice-monthly except September when three returns are filed) or quarterly depending on the winery’s expected and previous annual tax liability. In accordance with TTB regulations, the default position is that wineries must file semi-monthly returns.
Wineries that are eligible to file quarterly 5120.17s (less than $50,000 in excise tax) and that were eligible to file quarterly 5120.17s the preceding year (less than $50,000 in excise tax) may choose to file quarterly 5000.24s. Under certain conditions, wineries eligible to file annual 5120.17s (who pay less than $1,000 in excise tax) may also be permitted to file annual 5000.24s.
For further information about eligibility for annual excise tax filing, contact TTB’s National Revenue Center (“NRC”). If you choose to file on a quarterly basis, the last day for paying excise tax and filing returns is the 14th day after the end of the calendar quarter. According to TTB regulations, annual excise tax forms together with tax payment are due “within 30 days after the end of the calendar year.” For a basic tutorial on form 5000.24 go to http://www.ttb.gov/forms/helpful_hints500024.shtml. The TTB website has a page that summarizes all filing due dates for excise tax returns: http://www.ttb.gov/tax_audit/fed_ex_tax_due.shtml. This is particularly helpful for semi-monthly excise tax filers given the complexity of filing deadlines.
Remember, to avoid fines and penalties it is critical that reports have an original signature from a winery representative with appropriate signing authority (approved TTB form 5000.8), and that reports are filed prior to mandatory deadlines.
What are the basic small winery recordkeeping requirements?
TTB regulations require wineries to retain all excise tax returns, operations reports, and records for not less than three years. Winery records mandated by TTB include all “wine transaction records” (recorded in either wine gallons or liters) – a broad term that covers essentially any record that verifies any operation or production activity on the winery premises. These records include: (1) bottling operations records; (2) taxable and non-taxable removal records; (3) label information records (varietal, vintage, appellation of origin, analytical data, date of harvest); and (4) records of any material or operation appearing on 5120.17s (including date of receipt, quantity received, name of party received from, date of use). In each case, records should be clear and complete enough that TTB auditors can verify every activity on the winery premises for the past three years upon examination.
Remember, TTB auditors have only a few days to conduct a review and make an assessment. Clarity and thoroughness make their job easier. While no doubt a chore to maintain, transparent records and reports are items TTB is likely to remember.