Records Issue 1 — Daily Records of Operations

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TTB auditors most frequently cite a brewer’s lack of, and inaccuracy of, records required under TTB regulations as the number one non-compliance issue. Under 27 CFR part 25, brewers must complete and maintain daily records and reports that capture information about brewery operations.

As outlined in 27 CFR 25.292, daily records must include:

• Each kind of material received and used in the production of beer and cereal beverage;

• The amount of beer and cereal beverage produced;

• Beer and cereal beverage transferred for, and returned from, bottling and racking, or bottled, racked, or removed from the brewery;

  • Beer removed for consumption or sale -- For each removal, the record shows the date of removal, the person to whom the brewer shipped or delivered the beer, and the quantities of beer removed calculated in kegs and in bottles;

  • Beer removed without payment of tax -- For each removal, the record shows the date of removal, the person to whom the brewer shipped or delivered the beer, and the quantities of beer removed in kegs, bottles, tanks, tank cars, tank trucks, tank ships, barges, or deep tanks of vessels;

• Packaged beer used for laboratory samples at the brewery;

• Beer consumed at the brewery;

• Beer returned to the brewery from which it was originally removed or from another brewery that the brewer owns;

• Beer reconditioned, used as material, or destroyed;

• Beer received from other breweries or received from pilot brewing plants;

• Beer and cereal beverage lost due to breakage, theft, casualty, or other unusual cause;

• Brewing materials sold or transferred to pilot brewing plants (including the name and address of the person to whom it was shipped or delivered), and brewing materials used in the manufacture of wort, wort concentrate, malt syrup, and malt extract for sale or removal;

• Record of tests of measuring devices; and

• Beer purchased from other brewers in the purchasing brewer's barrels and kegs and such beer sold to other brewers.

All entries in the daily records must show the date of the operation or transaction, accurately and clearly reflect the details of each operation or transaction, and contain all data necessary to enable brewers to prepare summaries, reports, and returns. The records should verify removals of beer and cereal beverages, verify claims, and confirm compliance with laws and regulations.

 

Most Common Daily Recordkeeping Mistakes  

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TTB often finds that brewers do not properly maintain daily records that support entries that they make on the Brewer’s Report of Operations (BROP) (TTB F 5130.9) or on the Quarterly Brewer's Report of Operations (TTB F 5130.26). Brewers most commonly fail to:

• Accurately report the amount of beer returned to the brewery;

• Properly maintain records regarding destruction of beer;

• Appropriately record lab sample removals; and

• Appropriately report, record, or maintain supporting documents regarding losses or shortages.

How to Avoid Daily Recordkeeping Mistakes  

1. Review 27 CFR 25.292. This regulation provides a complete list of the daily records that brewers must complete and maintain. These daily records are very important because they are the source documents on which the Excise Tax and BROP are based.

2. As required by 27 CFR 25.291(b), complete each entry required under part 25 on the daily records no later than the close of the next business day after the day of the transaction. Build recordkeeping duties into the brewery’s daily work schedule.

3. Be extra vigilant with recordkeeping requirements when beer is:

   • Returned to the brewery;

   • Destroyed on or off premises; or

   • Removed without payment of tax under subpart L, such as samples removed for analysis or testing, removals of beer unfit for beverage use, or removals of bulk beer to a distilled spirits plant.

4. If you have questions, you may contact the Brewery Applications Section (Beer Tax Group) at the NRC.

 

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Records Issue 2 — Inventory Records

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Under 27 CFR 25.294, brewers must take a physical inventory of beer and cereal beverage at least once per calendar month. The brewer must retain inventory records and make them available for inspection when an appropriate TTB officer requests them.

The record of inventory must include the following:

• Date taken;

• Quantity of beer and cereal beverage on hand;

• Losses, gains, and shortages; and

• Signature–under penalties of perjury–of the brewer or person taking the inventory.

 

Most Common Inventory Mistakes 

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TTB most commonly finds the following inventory errors:

• Inventory sheets are not signed (see Production and Inventory Issue–1).

• Brewers fail to take inventory each month.

• Brewers fail to properly maintain inventory records or fail to make inventories available for inspection.

• Brewers do not adequately report or document shortages and losses revealed by physical inventory.

• Inventory records do not agree with the BROP.

Physical inventories must be performed every month (§ 25.294(a))

TTB auditors find that brewers neglect to perform inventories or fail to perform complete inventories. For example, a brewer may complete an inventory of premises but may fail to account for product loaded onto trucks. TTB cannot always rely on a brewer’s book inventory to calculate tax because, in many cases, actual inventory count is less than book inventory.

Brewers must document shortages

Under § 25.294, brewers are required to maintain monthly physical inventories of all beer on hand and to report any losses, gains, and shortages. When TTB discovers an inventory issue it is generally because the brewer’s inventory records do not agree with the BROP or the brewer uses line 11 (physical inventory disclosed an overage) and line 31 (physical inventory disclosed a shortage) of the BROP to balance the report totals. TTB finds that brewers frequently do not calculate overages and shortages from cellar operations, tank logs, and meter readings separately. Instead, they calculate the net difference between the amount of cellar production, plus additions against the total of beer transferred to racking and bottling.

 

How to Avoid Inventory Issues 

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1. Review 27 CFR 25.294. This regulation describes the records required for, and timing of, physical inventory counts.

2. As permitted in 27 CFR 25.52, submit a request to TTB if a variance from the timing of inventory requirements (§ 25.294) is necessary.

3. Make sure the brewer or other authorized individual signs the inventory summary under penalty of perjury, as outlined in 25 CFR 25.299. Before signing an inventory summary, the signee should make sure that the inventory record is accurate and complete.

4. Properly complete and maintain reports of losses and shortages. If you report losses on the BROP, you must ensure that what you report is actually a loss and not a shortage.
   
   Report losses on line 30 of the BROP for "recorded losses, including theft" and report, "physical inventory disclosed a shortage," on line 31, columns (d) and (f). As outlined under number 7 on the instructions for the BROP, you must provide further details of the shortage, line 30 in "Part 5 – Remarks" of the BROP.
   
   TTB suggests that you complete reports and gather any supporting information regarding losses and shortages immediately after you identify the discrepancy. Review TTB Industry Circular 2007–1, Shortages of Inventoried Packaged Beer for more information on the proper recording and documentation of shortages.

5. If you have questions, you may contact the Brewery Applications Section at the NRC. Direct all questions regarding items on the BROP to the Beer Tax Section.

 

Records Issue 3 —BROP (TTB F 5130.9)

Under 27 CFR 25.297, brewers must prepare and submit BROPs. Brewers must fully support all entries on their excise tax return TTB F 5000.24 with accurate and complete BROPs. The most frequent audit issue concerning BROPs is that brewers consistently file the BROP late or they do not submit it at all. As outlined in the instructions for the BROP, brewers must submit BROPs by the fifteenth day after the end of the reporting period.

Another common issue that TTB auditors cite is the lack of supporting documentation or improper maintenance of supporting documentation.

 

Most Common BROP Mistakes 

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TTB auditors commonly find errors in the following sections of the BROP:

• Line 2: The brewer’s daily "beer and cereal beverage produced" records to not support the amount entered under "beer produced by fermentation," required under § 25.295.

• Line 5: Brewers frequently misinterpret the category of "beer that is received in bond from other breweries and pilot brewing plants of same ownership." Breweries bring beer in bond onto their premises from breweries NOT under the same ownership and mistakenly record that transfer of beer on line 5. Beer under bond from another brewery or a pilot brewery may not be brought on to a brewery premises unless all parties are under the same ownership. Taxpaid beer from an outside, non-owned brewer, purchased by and stored on your brewery premises, does not need to be reported on the BROP. Breweries often confuse this line with line 8.

• Line 8: Brewers frequently misinterpret the category of "beer returned to this brewery after removal from another brewery of the same ownership." "Another brewery under the same ownership" means one corporation owns two or more breweries, or one corporation owns the controlling interest in the other corporation, or the same person owns a controlling interest in each corporation, as defined in 27 CFR 25.181.

  • A brewer may bring taxpaid beer of another brewer’s production onto the brewery premises when the brewer holds a wholesaler’s permit and segregates such beer from non-taxpaid beer, as outlined in 27 CFR 25.24.

  • This line is often confused with line 5, so double check for accuracy.

• Line 16: "Removed without payment of tax for export" should reflect the amount of beer the brewer exported that month. Many brewers ask whether exported beer counts toward the 60,000-barrel threshold for the reduced rate of tax. Only domestic removals for consumption or sale count toward the 60,000-barrel threshold.

• Line 18: "Removed without payment of tax for use in research, development and testing." Brewers must support such removals by their daily operational records, required in § 25.292.

• Line 21: "Beer consumed on premises." Brewers may not consider beer "removed tax determined for use at tavern on brewery premises" as beer "consumed on premises" under line 21. Remember, "beer consumed on premises" has no charge of any type.

 

How to Avoid Mistakes Regarding the BROP

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1. Review 27 CFR 25.291 and 27 CFR 25.292. These regulations outline what records and reports you must keep.

2. Complete and properly maintain daily records and supporting documentation.

3. File BROPs on time. You must submit BROPs no later than 15 days after the end of the reporting period. If you do not submit this report, you are in violation of TTB regulations.

4. Double check the BROP to ensure that you entered information on the correct lines. For more information on how to complete the BROP, see the BROP tutorial on www.TTB.gov.

5. If your business is a brewpub that produces less than 5,000 barrels per year, consider submitting a Quarterly Brewer's Report of Operations instead of the Brewers Report of Operations, The Quarterly Brewer's Report is a shorter, less complicated form.

6. If you have questions, you may contact the Beer Excise Tax Group at the NRC.

 

Records Issue 4 — General Recordkeeping Requirements

The general records that brewers are required to maintain under § 25.291 include:

• All individual transaction forms, records, and summaries specifically required in part 25;

• All supplemental, auxiliary, and source data used in the compilation of required forms, records, and summaries, and for preparation of reports, returns, and claims; and

• Copies of notices, reports, returns, approved applications, and other documents relating to brewery operations and transactions.

The records may consist of the brewer's commercial documents, rather than records prepared expressly to meet the requirements of part 25, but only if the commercial records:

• Contain all the details required under part 25;

• Are consistent with the general requirements of clarity and accuracy; and

• Do not result in difficulty in their examination.

 

Most Common General Recordkeeping Mistakes 

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Most general recordkeeping mistakes occur because the brewer:

• Does not maintain bills of lading;

• Does not keep a complete summary records;

• Does not maintain or make available book inventory records;

• Has inventory sheets that do not accurately reflect operations within the brewery; and

• Does not properly explain beer shortages.

 

How to Avoid General Recordkeeping Problems

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1. Review 27 CFR 25.291. This regulation discusses general record requirements.

2. Maintain accurate bills of lading and other supporting documentation for all shipments. Complete daily records for all brewery transactions and properly maintain those records. (See Records Issue 1—Daily Records of Operations.)

3. Make certain that your inventory records are complete and available to TTB officers. (See Records Issue 2—Inventory Records and Controls.)

4. Maintain copies of all notices, reports, returns, approved applications, and supporting documentation that relate to brewery operations and transactions. (See Records Issue 5 — Retention and Preservation of Records.)

5. Verify that entries your brewery makes on daily records and inventories correspond to entries on the BROP.

6. If you have questions, you may contact the Brewery Applications Section at the NRC.

  

Records Issue 5 — Retention and Preservation of Records

Under 27 CFR 25.300, brewers must prepare and maintain records necessary for production and removals at the brewery where the operation or transaction occurs and make these records available to TTB. Brewers may store records off the brewery’s premises, but they must obtain TTB approval to do so. Brewers must maintain records required in part 25 for a period of "not less than three years".

 

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Most Common Record Retention and Preservation Issues 

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TTB auditors often find that:

• Records are not retained for the required 3-year retention period.

• Brewers do not retain original commercial records that support removals, such as invoices, bills of lading, receiving and inspection reports, and sales memorandum.

• Brewers destroy paper and electronic data during or before the end of the 3-year preservation requirement.

• Brewers store records offsite without TTB approval.

 

How to Avoid Problems Related to Record Retention and Preservation

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1. Review 27 CFR 25.300. This regulation lists all records required under part 25 (electronic and paper) that you must maintain at the brewery premises.

2. Retain all records and documents required under part 25 (including daily summaries, inventory sheets, bills of lading, and invoices) for a minimum of 3 years.

3. Obtain an approved variance from § 25.300(a) before you store records off premises. Ensure that records stored offsite will be available for inspection within 24 hours.

4. If you have questions, you may contact the Brewery Applications Section at the NRC.

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Records Issue 6 — Penalties for Failure to Maintain Records

The Internal Revenue Code provision under 26 U.S.C. 5672 describes the penalties for failure to maintain records. It provides that if a brewer fails or refuses to keep the records and file the returns required in part 25, or refuses to permit any TTB officer to inspect such records, the Government may fine the brewer up to $1,000, or seek imprisonment of up to 1 year, or both, for each such offense.

How to Avoid Penalties for Improper Recordkeeping  

1. Create a reliable system for filing and maintaining required documents, records, and forms.

2. If you are unsure whether you need to maintain a specific document, you may contact the Brewery Applications Section at the NRC.