dealing with Federal Adverse Actions WRITTEN BY JIM MCCOY
How do you deal with being cited with significant tax liability and/or regulatory violations?
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he distiller operates in a highly regulated and taxed government regulatory environment, and it is always possible that said government (our friends at TTB) will schedule an investigative team to visit the distillery for a compliance review or tax audit. In either case, the findings presented by the team will impact the distiller, quite often requiring changes to operations or records, updates to the permit files, adjustments to labels or formulas, or additional taxes to be accounted for. The team’s results will typically be expressed verbally at the end of their field work, with a follow-up letter explaining the findings in detail and offering the DSP owner a chance to reply with explanations, corrective efforts, and steps taken to prevent reoccurrence of the violations. Like any government inspection, a TTB audit or investigation is a process, and the results of the process take time to resolve. Internally, the distiller has to make procedural, operational, and records adjustments, possibly re-file for labels and formulas, and at worst make tax adjustments. In respect to the government action, the distiller submits a written reply to the gov-
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ernment notice addressing how each issue is being dealt with. That all sounds fairly simple and easy, doesn’t it? However, what if the government findings are significant, a lot of tax is owed, or big shortages and problems are cited? A letter, a check, and corrections may not (will not, in fact) suffice to resolve major findings. The process gets serious at this point, as the distiller may receive a “Notice of Contemplated Adverse Action” or a “Notice and Demand for Taxes,” or a request to appear in Cincinnati or Washington at a conference to discuss resolution of tax owed, violations cited, and potential suspension or revocation of the distiller’s permit. How do you deal with being cited with significant tax liability and/or regulatory violations? How do you reconcile where your distillery has been in respect to compliance with federal regulations, while moving forward, making necessary corrections, building your brand, and making a profit? First, the world has not ended. The government is willing to work with you, as long as you can demonstrate that they have your attention and you are working to be com-
pliant. Prompt responses to their notices, comprehensive attention to their findings, and a positive can-do approach to compliance go a long way towards obtaining the most reasonable settlement (it may still be tough, but better than the alternative). Most important is to be honest and truly do what you tell them you are doing to make things right. The progressive compliance program typical for these cases first involves giving the taxpayer notice of the team’s findings and soliciting a response. Next, if the violations are significant, the notice of contemplated adverse action is provided, which the distiller can reply to with an updated “progress report” on corrective action. In the first response, the answer may have been speculative. Response to this second notice might be that a given correction has been made and employed, and results are provable. Always, if the government asks for additional information, such as evidence of correction, respond promptly and positively, no quibbling or negativity. Always remember that your level of cooperation is noted in their determining your willingness to be compliant.
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