Next we need to ask: How do we compute the operations bond, and what are the minimums? Most distillers have each of the three types of DSP operations – distilling,
Getting Bond Right! the
CARE AND FEEDING OF THE TTB FORM 5110.56
warehousing and processing spirits. The minimum bond for all three operations is $15,000, which covers about 1,100 proof gallons of spirits. At 80 proof, that is about 1,375 wine gallons of product. Ten barrels of whisky, each holding 50 gallons at 120 proof, is 500 wine gallons, or 600 proof gallons. A 375 gallon tote of 190 proof neutral spirits is 712.5 proof gallons. Three pallets (144 cases) of bottled product, 80 proof, in cases of 12 bottles each, 750ml bottles, is 342.4 wine gallons or 273.9 proof gallons. A DSP with the barrels, the tote, and the case goods in this example will have 1,586.4 proof gallons to be bonded, which equates, at $13.50 excise tax rate, to $21,416.40 in potential government revenue to be subject to the bond. Many plants have started under the minimum $15,000 bond, the point here being that the minimum bond is restrictive, and the planning of product inventory volumes (bulk
WRITTEN BY JIM MCCOY
and bottled) may require the operations bond to be larger, right from the start.
Second, is withdrawal bond coverage, which is in addition to the above defined operations coverage. It covers deferral of critical piece of the distiller’s puzzle in establishing their
excise tax from the date of withdrawal “tax determined” until
Distilled Spirits Plant (DSP) is the process of obtaining
the tax is actually paid to the government. A small distiller,
and providing to TTB a perfectly executed Distilled Spirits Bond
projecting to pay less than $50,000 per calendar year, may file
– TTB F 5110.56. The purpose of the bond is to provide the
their Excise tax return (TTB F 5000.24) and pay excise tax on
government with a guarantee that excise taxes will be paid, and
spirits removed from bond on a quarterly basis, otherwise, the
assurance that the distiller will comply with Federal laws and
returns and payments are due semi-monthly (twice a month).
regulations. TTB will not process an application for, nor approve, The tax return and payment must be on time or penalties and a DSP unless a correctly prepared bond is included in the
interest are due. TTB publishes the due dates on their website.
application package. Also, TTB requires that the Bond form be
A distiller may also pay the tax on or before the date when
original – it must be sent to TTB, not just uploaded as an image
the products are removed, in which case no withdrawal bond is
in the Permits Online program.
needed. This would involve filing of a “Prepayment Return” each
Referring to the bonding requirements in 27 CFR Part 19, the
and every day when products are sold. Removals of products
distiller has two types of coverage to consider. First, operations
include shipments to wholesalers and transfers to your tasting
bond coverage covers the tax value of distilled spirits held on the
and retail premises. If you have those types of operations at
distillery or in the process of being transferred in bond to the
your distillery, remember, they are adjacent to the DSP and not
distillery bonded premises. It also covers the tax value of export
technically part of the DSP. The tax is due on bottled products
shipments that have left the plant but which the distiller has
when removed, unless a withdrawal deferment bond is provided.
yet to provide TTB proof of exportation from the US. In general
If you sell 100 proof gallons per 3 month period, a withdrawal
terms, the operations bond covers spirits on hand, in transit or
bond of $1,350.00 would be required to enable quarterly filing.
unaccounted for. Unaccounted for? That would be spirits lost or In order to set an appropriate withdrawal bond amount, you will destroyed which have yet to be accepted by TTB as accounted
need to project your taxes due on withdrawals for each tax period,
for by the distiller.
in proof gallons, multiplied by the $13.50 per PG tax rate.