To: All Brewers.

1. PURPOSE

The purpose of this procedure is to provide brewers with guidance regarding the transfer of beer, without payment of tax, from one brewery to another brewery not of the same ownership.  Before the enactment of recent legislation, only breweries of the same ownership could transfer beer between them without payment of tax.  However, recently enacted legislation allows for the transfer of beer between breweries not of the same ownership without payment of tax, subject to such conditions as the Secretary by regulations may prescribe.

As described below, TTB currently has regulations that address transfers of beer between breweries of the same ownership without payment of tax.  Because of the length of time required to amend the regulations and the fact that the recent statutory changes are effective for a two-year period, TTB is issuing this Procedure to apply the same requirements currently prescribed by regulation for transfers of beer between breweries of the same ownership to transfers of beer between breweries not of the same ownership.

This Procedure also includes guidance regarding the effect of transfers of beer between breweries not of the same ownership on the applicability of the reduced beer excise tax rates included in the recently enacted legislation.  TTB previously issued guidance related to this topic on its website (http://www.ttb.gov) under the Craft Beverage Modernization Act and Tax Reform webpage, which is included in this Procedure for ease of reference.

2. AUTHORITY

On December 22, 2017, the President signed into law the Tax Cuts and Jobs Act of 2017 (the Act), which made extensive changes to the Internal Revenue Code of 1986 (IRC), including its provisions related to the transfer of beer between brewers without payment of tax.

Prior to the Act’s passage, the IRC authorized the transfer of beer without payment of tax only between breweries belonging to the same brewer.  This provision of the IRC remains in effect; see 26 U.S.C. 5414(a).  The TTB regulations setting forth requirements relating to transfers of beer between breweries of the same ownership are found at 27 CFR 25.181 through 25.186.

The Act’s amendments to 26 U.S.C. 5414, now provide that beer may be removed from one bonded brewery without payment of tax for transfer to another bonded brewery not of the same ownership, and that the transferred beer may be mingled with beer at the receiving brewery, subject to such conditions, including payment of the tax, and in such containers, as the Secretary by regulations shall prescribe when:

• The proprietors of the transferring and receiving premises are independent of each other and neither has a proprietary interest, directly or indirectly, in the business of the other; and
• The transferor has divested itself of all interest in the beer so transferred and the transferee has accepted responsibility for payment of the tax.

Under new subsection (b), the receiving brewer is liable for the tax on beer lost in transit, effective from the time of removal from the transferor’s bonded premises, or from the time of divestment of interest, whichever is later.

These new transfer provisions apply through December 31, 2019.

Prior to the Act’s passage, the term “bonded brewery” was not used in the IRC or in TTB’s regulations.  The IRC at 26 U.S.C. 5401(b) requires all brewers, unless otherwise exempted, to execute a bond prior to commencing operations.  The IRC at 26 U.S.C. 5551(d)(1) exempts certain brewers from the bond requirement. Under section 5551(d)(2), however, any brewer exempt from the bond requirement shall be treated as if sufficient bond has been furnished.  Accordingly, for purposes of this Procedure, TTB will consider brewers that have furnished a bond as well as brewers that are exempt from furnishing a bond under 26 U.S.C. 5551(d)(1) to have “bonded breweries” for the purposes of 26 U.S.C. 5414.  We use the term “brewery” in this Procedure to refer to breweries that are covered by a bond as well as breweries where the brewer is exempt from the bond requirement.

Therefore, until the end of 2019, a brewer may transfer beer in packages (such as barrels, kegs, cases, bottles, or similar consumer containers) or in bulk containers (a container with a capacity larger than one barrel of 31 gallons), without payment of tax, to another brewery not of the same ownership.  However, for beer so transferred, the application of the new reduced rates of excise tax also provided for in the Act is subject to the limitations and conditions outlined below.

3. PROCEDURE FOR TRANSFERRING BEER BETWEEN BREWERIES

Record of Beer Transferred

In order to accurately account for beer transferred under the Act, both the brewer transferring beer and the brewer receiving the beer must maintain records that contain the information set forth below.  See the TTB regulatory provisions at 27 CFR 25.186.

Transfer Document Information

When beer is transferred between brewers not of the same ownership, the shipping brewer will prepare an invoice or commercial record covering the transfer.  The invoice must clearly show that the beer was transferred without payment of tax under 26 U.S.C. 5414(b)(1)(C), and must contain the following information:

• Name and address of shipping brewer;
• Date of shipment;
• Name and address of receiving brewer;
• For cases, the number and size of cases and the total barrels;
• For kegs, the number and size of kegs and the total barrels;
• For shipments in bulk containers, the type of container, identity of the container¹, and the total barrels.

Reconsignment of Beer

Beer removed without payment of tax under this procedure may be reconsigned while in transit to another brewery.  In such cases, the shipping brewer must:

• Prepare a new transfer invoice showing reconsignment to another brewery and void all copies of the original transfer invoice; or
• Mark all copies of the original invoice with the words “Reconsigned to ______________,” followed by the name and address of the brewery to which the beer is reconsigned.

The brewery to which the beer is reconsigned is liable for the tax on beer lost in transit.

Return of Beer

Beer removed without payment of tax under this procedure may be returned to the original brewery.  The brewery to which the beer is reconsigned or returned is liable for the tax on beer lost in transit.

Disposition of Invoice

Upon shipment of the beer, the shipping brewer must send the original copy of the invoice to the receiving brewer, and must retain a copy for their brewery records.  On receipt of the beer, the receiving brewer (including a brewer to whom beer was returned or reconsigned in transit) must note on the invoice any discrepancies in the beer received, and retain the invoice in the brewery records.

Preparation of Records and Reports

The shipping brewer will use the transfer invoice in preparing the daily records required under 27 CFR 25.292 and in preparing the monthly Brewer’s Report of Operations (BROP, TTB F 5130.9) or, if applicable, the Quarterly Brewer’s Report of Operations (QBROP, TTB F 5130.26).  The receiving brewer (including a brewer to whom beer was returned or reconsigned in transit) will use the transfer invoice showing beer received from another brewery without payment of tax (or returned to it) in preparing the required daily records, as outlined at § 25.292, and in preparing the BROP or, if applicable, the QBROP.

• Transferring Brewer:  The transferring brewer will report beer transferred from their premises to a brewer not of the same ownership on the same lines currently used to report transfers between brewers of the same ownership, which are:

✔ Line 19, “Removed without payment of tax to other breweries and pilot brewing plants of same ownership” on TTB F 5130.9, or

✔ Line 11, “Beer removed without payment of tax as outlined under Subpart L of part 25,” on TTB F 5130.26.

• Receiving Brewer:  The receiving brewer will report the receipt of the beer transferred under the Act on:

✔ Line 5, “Beer received in bond” on TTB F 5130.9, or

✔ Line 3, “Beer received in bond,” on TTB F 5130.26.

If a brewer receiving beer transferred in bond subsequently removes that beer for consumption or sale, the brewer will report such removals on Line 14 of TTB F 5130.9 or Line 10 of TTB F 5130.26 and ensure that they are paying the appropriate tax rate.

Bond Coverage

Prior to transferring beer, brewers should ensure that they have sufficient bond coverage, if applicable.  See 27 CFR 25.91.

Kinds of Containers

In general, a brewer may transfer beer without payment of tax from one brewery to another brewery in the brewer’s packages or in bulk containers, as described under 27 CFR 25.181 through 25.185.  Brewers must mark, brand, or label brewer’s packages or bulk containers as provided by Subpart J of part 25 of the TTB regulations (§§25.141 through 25.145); see Section 6 below for details.

Determination of Quantity Transferred

The shipping brewer must determine the quantity of beer shipped at the time of removal from the brewery, and the receiving brewer must determine the quantity of beer received at the time of receipt at the brewery.  The brewer will use suitable measuring devices to accurately determine the quantities of beer to be shipped and received in bulk conveyances.  See 27 CFR 25.183 and 25.293.

4. APPLICABILITY OF REDUCED RATES OF TAX FOR BEER TRANSFERRED BETWEEN BREWERS NOT OF THE SAME OWNERSHIP

When Reduced Rates are Applicable

The Act sets forth a reduced excise tax rate of $16 per barrel on the first 6,000,000 barrels of domestically produced beer brewed by a brewer and removed during the calendar years of 2018 and 2019.²  In the case of a brewer who produces not more than 2,000,000 barrels of beer during the calendar year, the Act also provides a reduced rate of $3.50 per barrel on the first 60,000 barrels of beer which are removed for consumption or sale during the calendar years of 2018 and 2019 and which have been brewed or produced by such brewer at a qualified brewery in the United States.  In all other cases, a tax rate of $18 per barrel applies when the beer is removed for consumption or sale.  Additional rules under the Act at 26 U.S.C. 5051(a)(5) regarding control groups and single taxpayers also may affect a brewer’s eligibility for the reduced tax rates.  In general, a brewer may apply a reduced excise tax rate on beer under the Act only when it is the producer of the beer being removed for consumption or sale; a brewer may NOT apply a reduced excise tax rate on beer under the Act when transferred beer is merely received and then removed for consumption or sale, except as noted below.

Transfer of Domestically Produced Beer in Bulk

A brewer that receives domestically produced beer in bulk would not be entitled to take a reduced rate of tax upon removal of the beer for consumption or sale if the receiving brewer only makes de minimis changes to the bulk beer (such as adding carbon dioxide) or only bottles or packages the bulk beer into consumer containers.  In such cases, the applicable tax rate upon removal for consumption or sale would be $18 per barrel.

For purposes of taking the reduced rate of tax allowed by the Act, beer is considered to have been “produced” if it is lawfully brewed or produced at a qualified brewery premises, including beer brewed by fermentation or produced by the addition of water or other liquids during any stage of production.  A brewer who receives domestically produced beer, and who adds water or other liquids may be eligible for a reduced tax upon removal for consumption or sale on the entire volume of the finished product.  In such cases, the receiving brewer is now considered the producing brewer and may thus remove the finished product at either $3.50 or $16 per barrel, depending on the brewer’s eligibility for the reduced tax rates.  As stated above, a brewer’s inclusion in a controlled group or an arrangement that triggers the “single taxpayer” rules will affect the brewer’s eligibility for the reduced rates.

TTB does not consider the operation of blending to be “production” for the purpose of taking the reduced tax rates allowed by the Act; however, if a brewery bottles and removes a beer that is a blend of beer of its own production with beer produced by another brewery not of the same ownership, it may use the applicable reduced tax rate only on the portion of beer it produced and not on the portion received from the other brewery.  The portion of the beer received from the other brewery would be removed at the tax rate of $18 per barrel.

Transfer of Domestically Produced Packaged Beer

A brewer receiving packaged beer (beer packaged in consumer containers—bottles, cases, or kegs) that has been transferred without payment of tax from a brewer not of the same ownership is not entitled to remove the packaged beer at a reduced tax rate.  The applicable tax rate for beer that was transferred without payment of tax in bottles, kegs, or other consumer containers from a brewer not of the same ownership would be $18 per barrel upon removal for consumption or sale.

However, a brewer who transfers beer that was produced at its brewery to another brewery for bottling and/or storage, and subsequently receives the same beer back after bottling and/or storage, would be eligible to remove the beer from its brewery for consumption or sale at the appropriate reduced rate.

5. Records Substantiating Tax Rate and Losses in Transit

Maintenance of Records

Brewers must maintain records evidencing such transfers, production activities, and the appropriate tax payment of such beer, as the brewer’s records must substantiate the tax rate applied.  See also the provisions at 27 CFR 25.291 through 25.301.

Losses in Transit

Liability for Losses

The brewery to which beer is transferred is liable for the tax on beer lost in transit effective from the time of removal from the transferor’s bonded premises, or from the time of divestment of interest, whichever is later.  If the transferred beer is reconsigned while in transit or returned to the shipping brewery, the brewery to which the beer is reconsigned or returned is liable for the tax on beer lost in transit.  See also the provisions of 27 CFR 25.184.

Losses Allowable without Claim

If loss of beer being transferred does not exceed two percent of the quantity shipped, the receiving brewer is not required to file a report of loss or a claim for allowance of the loss if there are no circumstances indicating that the beer, or any portion of the beer lost, was stolen or otherwise diverted to an unlawful purpose.

Losses Requiring Claim

If loss of beer during transit exceeds two percent of the quantity shipped, the receiving brewer must submit a claim under penalties of perjury for remission of the tax on the entire loss.  The receiving brewer prepares and submits the claim following the same procedure as is outlined for transfers between brewers of the same ownership in 27 CFR 25.286.

Losses Requiring Immediate Report

The receiving brewer must report to the appropriate TTB officer a loss by fire, theft, casualty, or any other unusual loss as soon as it becomes known.

See also the provisions of 27 CFR 25.184. 

6. STORAGE

The Act also provides that beer transferred between breweries not of the same ownership may be mingled with beer at the receiving brewery.  See 26 U.S.C. 5414(b)(1).  Thus, beer transferred without payment of tax between brewers not of the same ownership becomes part of the receiving brewer’s inventory and may be mingled with other beer on the premises.

7. MARKS, BRANDS, AND LABELING REQUIREMENTS

As noted above, under provisions of the Act, a brewery may transfer beer in packages or bulk containers to another brewery not of the same ownership, without payment of tax.  To ensure that beer transferred under the Act is appropriately marked, branded, and labeled, the requirements under 27 CFR Part 25, Subpart J apply when beer is transferred in brewer’s packages or in bulk containers.  Additionally, brewers bottling or packing into consumer containers beer that was transferred in bulk containers are responsible for obtaining label approval when required under the Federal Alcohol Administration Act (FAA Act) and implementing regulations at 27 CFR part 7.

Transfer of Beer in the Brewer’s Packages

Beer transferred in brewer’s packages from one brewery to another brewery not of the same ownership must meet the minimal marking, branding, and labeling requirements set forth under the TTB regulations at §§ 25.141 through 25.143.

Transfer of Beer in Bulk Containers

Domestically produced beer transferred in bulk containers from one brewery to another brewery not of the same ownership must meet the minimal marking requirements outlined under § 25.145.  The term “bulk container” means any container of beer having a capacity larger than one barrel of 31 gallons.

8. EFFECTIVE DATE

The provisions of the Act related to the transfer of beer between breweries not of the same ownership are effective through December 31, 2019.   Brewers that transferred beer on or after January 1, 2018, but prior to the issuance of this guidance, may vary from the specific requirements discussed in this Procedure for the beer transferred prior to the issuance of this guidance, provided that they have records sufficient to substantiate, to the satisfaction of TTB, any transfers made without payment of tax and any tax rate applied to beer received from another brewery and removed for consumption or sale