Small Brewers Bond Reduction and Requirement To File Tax Returns, Remit Tax Payments and Submit Reports Quarterly

SUMMARY: The Alcohol and Tobacco Tax and Trade Bureau (TTB) is adopting as a permanent regulatory change a flat $1,000 penal sum for the brewer's bond for brewers whose excise tax liability is reasonably expected to be not more than $50,000 in a given calendar year and who were liable for not more than $50,000 in such taxes in the preceding calendar year. TTB originally set forth this change in a temporary rule issued on December 7, 2012. In addition, TTB is adopting as a final rule its proposal, also issued on December 7, 2012, to require small brewers to file Federal excise tax returns, pay tax, and submit reports of operations quarterly. TTB expects these amendments to reduce the regulatory burdens on such brewers, reduce their administrative costs, and create administrative efficiencies for TTB.

EFFECTIVE DATE: This final rule is effective on January 1, 2015.

FOR FURTHER INFORMATION CONTACT: Ramona Hupp, Regulations and Rulings Division, Alcohol and Tobacco Tax and Trade Bureau, 1310 G Street NW., Box 12, Washington, DC 20005; telephone 202-453-1039, ext. 110, or email [email protected].

SUPPLEMENTARY INFORMATION:

Background

TTB Authority

Chapter 51 of the Internal Revenue Code of 1986 (IRC) pertains to the taxation of distilled spirits, wines, and beer (see title 26 of the United States Code (U.S.C.), chapter 51 (26 U.S.C. chapter 51)). With regard to beer, IRC section 5051 (26 U.S.C. 5051) imposes a Federal excise tax on all beer brewed or produced, and removed for consumption or sale, within the United States, or imported into the United States. The rate of the Federal excise tax on beer is $18 for every barrel containing not more than 31 gallons, and a like rate for any other quantity or for fractional parts of a barrel, with an exception that the rate of tax is $7 a barrel for the first 60,000 barrels of beer for a domestic brewer that does not produce more than 2 million barrels of beer in a calendar year. Section 5054 (26 U.S.C. 5054) provides that, in general, the tax imposed on beer under section 5051 shall be determined at the time the beer is removed for consumption or sale, and shall be paid by the brewer in accordance with section 5061 (26 U.S.C. 5061).

Section 5061 pertains to the time and method for submitting tax returns and payment of the applicable excise taxes. Section 5061 states that Federal excise taxes on distilled spirits, wines, and beer shall be collected on the basis of a return, and that the Secretary of the Treasury (the Secretary) shall, by regulation, prescribe the period or event for which such return shall be filed. Section 5061(d)(1) generally requires that the excise taxes owed on alcohol beverages, including beer, withdrawn under bond be paid no later than the 14th day after the last day of the semimonthly period during which the withdrawal occurs. Under a special rule, September has three return periods (section 5061(d)(5)), resulting in a total of 25 returns due each year. Section 5061(d)(4) provides an exception to the semimonthly rule for taxpayers who reasonably expect to be liable for not more than $50,000 in alcohol excise taxes in a calendar year and who were liable for not more than $50,000 in the preceding calendar year. Under this provision, such taxpayers may pay the excise taxes on alcohol beverages withdrawn under bond on a quarterly basis.

Section 5401(b) (26 U.S.C. 5401(b)) provides that all brewers shall obtain a bond to insure the payment of any taxes owed. The amount of such bond shall be "in such reasonable penal sum" as prescribed by the Secretary in regulations "as necessary to protect and insure collection of the revenue."

Section 5415 of the IRC (26 U.S.C. 5415) requires brewers to keep records and to make true and accurate "returns" of their brewing and associated operations at the times and for such periods as the Secretary prescribes by regulation. The implementing regulations refer to these "returns" as "reports" of operations.

The Alcohol and Tobacco Tax and Trade Bureau (TTB) administers chapter 51 of the IRC and its implementing regulations pursuant to section 1111(d) of the Homeland Security Act of 2002, codified at 6 U.S.C. 531(d). The Secretary has delegated various authorities through Treasury Department Order 120-01 (Revised), dated December 10, 2013, to the TTB Administrator to perform the functions and duties in administration and enforcement of these laws. Regulations that implement the provisions of sections 5051, 5054, 5061, 5401, and 5415 of the IRC, as they relate to beer, are set forth in part 25 of title 27 of the Code of Federal Regulations (27 CFR part 25).

Reducing Burdens on Regulated Industries

Executive Order 13563, Improving Regulation and Regulatory Review (E.O. 13563), signed by the President on January 18, 2011, required Federal agencies to conduct retrospective analyses of rules that may be outmoded, ineffective, insufficient, or excessively burdensome, and to modify, streamline, expand, or repeal them as appropriate. E.O. 13563 also required each agency to develop plans to review its regulations. The Department of the Treasury (Treasury) issued its Plan for Retrospective Analysis of Existing Rules (the Plan) on August 22, 2011. In developing the Plan, Treasury requested input from its Bureaus and Offices to help identify regulations that should be modified or updated. TTB identified a number of rulemaking proposals that were specifically included in the Plan, one of which concerned revision to the beer regulations contained in 27 CFR part 25. The proposal included in the Plan states:

Revisions to the Beer Regulations (Part 25): Under the authority of the Internal Revenue Code, TTB regulates activities at breweries. The regulations of Title 27 of the Code of Federal Regulations, Part 25, address the qualification of breweries, bonds and taxation, removals without payment of tax, and records and reporting. Brewery regulations were last revised in 1986 and need to be updated to reflect changes to the industry, including the increased number of small ("craft") brewers. In an advance notice of proposed rulemaking, TTB plans to solicit comments regarding potential ways to decrease the regulatory burden on industry members (including but not limited to streamlining and/or reducing the reporting and recordkeeping requirements for the industry, including small business members) and increase efficiency for both the industry and TTB. Upon consideration of comments received, TTB intends to develop and propose specific regulatory changes.

In September 2011, TTB met with representatives and members of the Brewers Association, a trade organization that promotes the interests of small and independent brewers in the United States, to discuss reducing the regulatory burdens on smaller brewers. During this meeting, the representatives and members put forth a number of suggestions toward that goal. TTB also met with members of the Oregon Brewers Guild in February 2012 to discuss the current regulatory burdens imposed on smaller brewers.

There is no specific statutory or regulatory definition as to who is a "small" brewer. However, for taxpayers who reasonably expect to be liable for not more than $50,000 in alcohol excise taxes in a calendar year, and who were liable for not more than $50,000 in such taxes in the preceding calendar year, there is, under section 5061(d)(4) of the IRC, a quarterly tax return and tax payment exception to the semimonthly rule. TTB believes the requirements to qualify for the quarterly tax return and tax payment exception provide a reasonable standard for determining those brewers for which quarterly filing is appropriate for purposes of the IRC. In 2011, analysis of TTB data revealed that the vast majority of brewers qualified as quarterly taxpayers under this standard. Specifically, this data provided that 2,026 brewers submitted Federal excise tax returns to TTB, and 1,846 of those brewers (91 percent) paid less than $50,000 in excise tax annually. In fact, the vast majority of those 1,846 brewers paid much less than $50,000, given that 1,616 of those brewers (87.5 percent) paid annual taxes of $7,000 or less. Hereafter, when used in this document, the term "small brewers" will refer to brewers who are eligible to file excise tax returns, remit tax payments, and submit operations reports on a quarterly basis.

Tax Return Filing, Tax Payment, Bond, and Reporting Requirements

Statutory requirements for brewers include filing tax returns, remitting excise tax payments, obtaining a brewer's bond, and submitting reports of operations. Under TTB's current regulations, there are options that a small brewer must consider. First, the regulations provide that a small brewer may file tax returns and pay taxes either semimonthly or quarterly (27 CFR 25.164(c)). Under SEC 25.164(c), a brewer must adhere to a semimonthly tax return period unless the brewer qualifies for, and chooses to use, a quarterly tax return period. A brewer has the option to choose to use a quarterly return period if the brewer reasonably expects to be liable for not more than $50,000 in taxes with respect to beer imposed by 26 U.S.C. 5051 and 7652 in a calendar year and was liable for not more than $50,000 in such taxes in the preceding calendar year.

--This is a summary of a Federal Register article originally published on the page number listed below--

Final rule; Treasury decision.

CFR Part: "27 CFR Part 25"

RIN Number: "RIN 1513-AB94"

Citation: "79 FR 58674"

Document Number: "Docket No. TTB-2012-0006; T.D. TTB-123; Re: Notice No. 131 and T.D. TTB-109"

Federal Register Page Number: "58674"

"Rules and Regulations"