What are Common TTB Compliance Issues in the Alcohol Industry?

Anyone with experience in the alcohol industry likely knows that it is a heavily regulated industry, with many strict rules dating back to the repeal of prohibition. By addressing common compliance issues and implementing proactive measures, alcohol industry members can minimize regulatory risks and maintain compliance with TTB requirement. Below are some common compliance issues:

Federal Excise Tax ("FET"):

• Underpayment of FET: Inaccurate calculations leading to underpayment of excise taxes on alcohol production, importation, or distribution.

• Late or Missed FET Returns: Failure to file excise tax returns or reports with the TTB by the specified deadlines. Due to the filing frequencies changing based on yearly excise tax liability, it is important to ensure you are reporting under the proper filing schedule. For more information on filing frequencies, visit TTB's resource of excise tax filing due dates (Due Dates for Tax Returns | TTB: Alcohol and Tobacco Tax and Trade Bureau).

Recordkeeping Deficiencies:

• Incomplete or Inaccurate Records: Failure to maintain detailed and accurate records of production, inventory, sales, tax liabilities, and other required information.

• Record Retention Violations: Failure to retain records for the required period as specified by TTB regulations.

Insufficient Training and Knowledge:

• Lack of Understanding: Insufficient knowledge of TTB regulations and requirements among staff responsible for compliance, resulting in inadvertent violations.

• Failure to Stay Updated: Neglecting to stay informed about changes to TTB regulations, tax rates, reporting requirements, and compliance deadlines.

Labeling and Formula Violations:

• Missing Formula Approval: When producing alcohol beverages with added flavors, spices, or non-traditional ingredients TTB may require a formula. The formula requirements vary based on the product being produced. When producing a product that requires formula approval, a formula application must be submitted to TTB, and approval must be given.

• COLA or COLA Exemption Approval: Certificate of Label Approval ("COLA") or an exemption for a Certificate of Label Approval may be required prior to selling your alcoholic product.

• Missing, Misleading, or Inadequate Statements: Regardless of whether formula and label approval are required, labels containing false, misleading, or inadequate information, such as a health warning statement, net content, or name of address of the bottler, producer, or importer depending on the product. Please note that there are mandatory label requirements for each alcoholic beverage commodity. For beer these requirements can be found under 27 CFR Part 7, for wine they can be found under 27 CFR Part 4, and for distilled spirits they can be found under 27 CFR Part 5.

To mitigate these issues, it is highly recommended that TTB industry members delegate responsibility to certain team members to take ownership of TTB compliance. This is often best achieved by developing standard operating procedures, which are reviewed and updated periodically. Further, assigning a back-up employee to cover these compliance requirements can be critical, as we frequently see highly qualified personnel leave an industry member without a succession plan in place, leading to confusion as to TTB compliance requirements going forward.

To help ensure compliance, permit holders should also conduct internal audits and reviews to identify potential compliance issues and address them proactively. This can include seeking advice and guidance from TTB experts, consultants, or legal professionals.

Our law firm has helped various industry members navigate TTB audits and investigations, as well as offers in compromise to settle federal excise tax assessments and administrative action. If your organization is in need of legal assistance, please contact our firm to schedule a consultation.