Artisan Spirit: Summer 2014

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Page 14

management. In the closing conference, TTB presents the distillery with its finding. TTB does this orally, but often also provides a rough discussion outline of issues found and corrective actions recommended. In many cases, TTB officials will already have communicated some or all findings and conclusions to distillery personnel during the course of the audit, and the distillery may already have corrected, or at least started to correct, any problems found by the audit. Following the closing conference, TTB generally follows up with a letter setting forth its findings. In the case of a revenue audit, the letter will detail any tax adjustments (i.e., overpayments and underpayments), compliance violations, and “control weaknesses� that do not violate any regulation, but that TTB officials believe can lead to revenue problems in the future. In the case of a product integrity audit, the letter will catalogue any

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FAA Act violations found. Where an audit covers both elements, TTB typically sends the company two separate letters. The letter(s) from TTB give the distillery an opportunity to respond and comment on the audit findings. But the response Anton PaarÂŽ USA

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process itself is a complex subject – an art – that varies highly with circumstances and issues found. As such, it is best left for another day. Of course, each audit is different and exceptional circumstances may disrupt the orderly flow of the audit process described

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above. If, for example, TTB believes it has found severe tax and/or compliance issues during the course of the audit, it may demand immediate corrective action before operations at the distillery can continue. While rare, these circumstances are not unheard of.

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What every reader should notice by now is that this article says nothing about the actual substantive rules TTB will check during the course of their audit. To summarize those rules would require its own book (TTB’s Part 19 distillery regulations alone take up 143 pages of the Code of Federal Regulations). But, of course, compliance with the laws and regulations administered by TTB is the best way to ensure that an audit passes by smoothly and without undue stress. Nevertheless, understanding the process can help distillers put their best foot forward and avoid unnecessary fretting about what is, in the end, an inevitable part of the highly-regulated distilling business.

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Marc E. Sorini is a partner in the law firm of McDermott Will & Emery LLP. Nothing in this article should be construed as or used as a substitute for legal advice. For more info visit www.mwe.com/Marc-E-Sorini or call (202) 756-8284.

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