We all have our New Year’s resolutions – some are personal and some are business. Nobody knows if we will keep or meet our New Year’s goals – but we sure won’t if we don’t make them! All business owners aspire to have things run smoother – ideally without monitoring! As an entrepreneur, you are curious and tend to figure out how to make things work. As a winery owner, you have toiled with the art of enology and perhaps viticulture too. You are well aware of the fact that this is an extremely regulated industry. You file operational reports and regular excise tax returns. However, do your records meet TTB requirements? Do a quick review of these items and you will not only knock out some business resolutions, but you can begin cleaning house for spring as you go through them:
1) You operate your winery under a basic federal permit.
Did you know that if anything changes in that permit that you need to report it to TTB within 30 days? Pull it out and review all pages. If there are changes in your business structure – either because of a transfer of ownership, an adjustment of operations or something else, you may need to file an amendment and possibly adjust your bond. Further, if you make an adjustment to your federal permit, you should check with your State licensing body – they may have an interest in your changes too.
2) Have you acquired new tanks for your winery?
Did you know that winery owner surveys show that tanks are the number one equipment item that wineries want to acquire in 2014? You have probably properly labeled your original tanks (or not). Every tank must have a serial number, it must be marked by permanent markings or removable signs of durable material to reflect its current use, and if used to store wine made in accordance with a formula, the formula number must be marked or otherwise indicated on the tank. If you use puncheons, barrels or similar bulk containers, they must be marked just like tanks if they hold over 100 gallons. If they hold less than 100 gallons, then you can forego the serial number and simply state the number of gallons that the container holds. All other requirements of tank labeling must be met, however.
3) Are your inventory records compliant?
All winery owners are required to prepare a physical inventory for all wine in storage at the close of business of each tax year. The dates for the end of the business year vary based on your particular proprietorship. However, if you are a small winery and file reports on a calendar year basis, then the physical inventory should take place on the last day of the calendar year – December 31. All calendar year proprietors should be filing a Report of Bonded Wine Premises Operations on Form 5120.17. While you file Form 5120.17 with TTB, you should simply keep a copy of your inventory filed with your Form 5120.17 copy so that it is available for review should TTB perform an onsite premises inspection.
Some things your inventory report should include are a description of the wine – that means a generic name, like “red wine,” or if the wine is marketed with a geographical designation or vintage date, then identify it as such. If there are fruits or other substances besides grapes, like honey, in the wine, identify that too. Tanks of wine should be listed by tank number. Bulk containers that are barrels or other containers that contain the same kind of wine can be summarized – by number of barrels and total gallons. The total volume of one kind of wine in cases, bottles or other containers may be entered as one item. So, you could state, 23 cases of “X” wine. Summarize the total volume for the inventory. Separate bulk wine from bottled or packed wine and calculate the volume in wine gallons or liters. Separate by tax class. Your inventory is a complete document in and of itself and TTB expects you to number the pages and swear under oath on the last page that you have personally examined the inventory and believe it to be correct. That statement is made under penalties of perjury and requires a specific statement set forth in the regulations. The inventory should then be signed and dated.
4) How quickly do reports need to be submitted?
If you are intent on adopting better business methods for the New Year, start with abiding by the expected method for keeping track of your information. The federal government expects you to timely record information, but what does that mean? Basically, you should be making entries into your records at the time your operation or transaction occurs – basically contemporaneously with the transaction. The exception is if records are created from records you put together at the time of the transaction or operation. If that is the case, then you basically have until the close of business on the third day after the succeeding day of the operation or transaction. Rather than keeping track of that timing, it is always best to create the records at the time of the action, if at all possible. If it isn’t possible, then establish a time immediately following the operation or transaction, or set aside time early the next business day before starting physical activities associated with your business operations, to update your records. If you are moving on to the next operation or transaction and you haven’t updated records, you should review your workflow to determine how you can set aside time for proper recordkeeping.
No doubt all of the above is a tremendous amount of work, however, it is simply a cost of doing business for this industry. Be sure to keep track of all of the above documentation for at least three years, preferably longer if possible. The reality is that the regulations require three years, however if the IRS should examine you and allege a substantial understatement of income, they can review your returns, and thus your records, for the last six years. Should they allege fraud, there is no statute of limitations. Our office has never had a client regret keeping records too long, so if you have a place to keep them, then keep them. Certainly electronic storage would work well for the old records to free up physical space. Should you require assistance or simply have questions about any of the above, don’t hesitate to contact us.