Running a brewery is a complex operation, with regulations and inspections from various regulators, the compliance requirements can be a challenge to maintain on top of the regular operation of production, shipping, and customer service needs. According to the Alcohol and Tobacco Tax and Trade Bureau (TTB), the main hurdles facing breweries under audit are most often related to the creation and maintenance of accurate records, including daily records, beer returns, calibration of meters and devices, and translating these records into accurate tax payments on schedule. We’ll cover some of the most common errors and how to avoid them below so you can ensure that an audit of your brewery is as painless as possible.

Daily record of operations

Beer returned to the brewery

There are strict requirements on records for beer returned to the brewery, yet these requirements are simple to meet so long as corners are not cut in the name of speed. With all returns, several boxes must be checked to ensure complete and accurate records:

• Date of the return
• Exact quantity of beer. This is simple if the returned beer is in unopened cases or bottles marked with the exact measurements. However, if the bottles have been opened or broken, the beer must be weighed exactly, accounting for the tare weight of packaging.
• Balling and Alcohol content. While it can be tempting to assume the alcohol content remains unchanged in the time the beer has been out of the possession of the brewery, the Code of Federal Regulations (CFR) requires up to date measurements if the beer is returned in a keg not equipped with tamper-proof fittings, or the packaging has been opened or broken.
• The name and address of the person returning the beer if the title to the beer has passed.
• The name and address of the brewery from which the beer was removed, if different from the brewery to which it is returned

Ensure that returns are always processed with complete details in the records and timely credit to the returning party to avoid problems with a potential audit down the line and to ensure that returned beer is permissible as an offset. (Returned beer requirements: 27 CFR 25.211 Offset requirements: 27 CFR 25.159)

Testing and measuring devices

Make sure your brewery is meeting requirements for testing and calibration of all measurement meters and devices used in your brewery. Federal regulations call for “periodic” testing without specifying an exact required period. Make sure to establish a regular schedule for testing and recalibration of measuring devices based on manufacturer guidelines and ensure that record-keeping is built into your testing procedures, including date of test, exactly which meter or device was tested, the test results, and what re-calibration or corrective actions were taken if needed. With so many different measurement tools in play every day, make sure that you are accounting for each meter, no matter now seemingly insignificant. (27 CFR 25.42)

Excise tax returns

Every brewer is required to file a federal excise tax return, even when there is no tax liability for the filing period. Late filing of excise tax returns is another of the most common issues found with breweries. Depending on the amount of tax liability your business incurs annually, you may be required to file either semi-monthly or quarterly. Be sure you understand the requirements for filing including due dates, and whether payment must be made by Electronic Fund Transfer. (27 CFR 25.164)

Time and determination of tax payment

Another common error in tax payment for breweries is improper determination and timing of tax payments. Tax is required to be paid on all beer that has been removed from the premises for sale and for consumption. Tax must be determined and paid at the time the beer is removed. Make sure that you are not determining the tax owed during production or paying tax on “beer on hand” rather than only what has been removed for sale or consumption. Other common errors include failure to pay taxes on beer that was removed from the premises and sent for repackaging or to another brewer that is not under the same ownership. Many tax filers also do not accurately ensure that offsets for beer returns are allowable based on regulations or to fail enter offsets on the same day that the beer was returned.

(27 CFR 25.155)

Make sure that operations are running smoothly while remaining compliant with regulations and tax requirements to avoid a lengthy and difficult TTB audit. With the right advisors, you can avoid problems before they arise. Talk with a professional and/or visit the TTB's article on “Common Compliance and Tax Issues Found During Brewery Audits“ for further information.