Higher Ground

IRS-logoThis week I’m sending a lot of thoughts (and what charitable assistance I can) to people displaced by flooding as a result of Hurricane Harvey.  Here in Seattle, many of us succumbed to grumpiness a few months ago as we suffered through the wettest winter on record – with 42 inches of rain.  The fact that Harvey dumped an estimated 45 inches of water on affected areas of Texas over a 48-hour period has certainly put our complaints into perspective.

As a practical matter, these kinds of natural disasters affect far more than Hooch.  But they also affect Hooch – and that’s what I want to talk about today in the hope that some portion of this will be helpful for those impacted by the storm.

When it comes to the impact of hurricanes on the sale of spirits, Harvey is not the TTB’s and the FDA’s first rodeo – and they have provided several pieces of guidance on relevant topics over the last few years.  In broad strokes, here is what you need to know:

If your products have been submerged in flood waters, you probably can’t sell them. Specifically, FDA guidance provides that any food (which includes spirits) in containers with “screw-caps, snap-lids, crimped-caps (soda pop bottles), twist-caps, snap-open, and similar type closures” that have been submerged in flood waters are considered adulterated products, and cannot be reconditioned.  The rationale here is that sediment and debris can become lodged in the closure of the container (e.g., under the lip of the cap) and become impossible to remove.  Since the sediment in the flood waters can be pretty nasty – the product can’t be reconditioned.

The reader will note that this list does not include cork (or artificial cork) stoppers in bottles of booze.  But a quick call to the FDA confirms what you might expect – they’re still covered by the guidance.

Under applicable law, adulterated products cannot be introduced into the human food supply.  In fact, you’re obligated to destroy them.

Note that the TTB follows suit here, and has published guidance stating that spirits, wines and malt beverages which are considered adulterated for purposes of the FDA are also considered mislabeled under the Federal Alcohol Administration Act.

All is not lost, however.

If you find yourself with a flooded warehouse filled with bottles of hooch, you may be entitled to at least get a refund from any federal excise taxes you may have paid.

If you’ve previously removed beverage alcohol from bond and paid the associated FET, and those products have now been lost, rendered unmarketable, or condemned under various circumstances, including where the President has declared a major disaster (as is the case in 33 counties in Texas at the time of this post), then you are entitled to get a refund of tax paid by submitting TTB Form 5260.8.  This refund is available regardless of whether you are an importer or a producer – if you paid the tax you’re likely to qualify.

There are a few items to keep in mind – all as set out in the TTB guidance.  For example, products lost due to theft are generally not eligible for a disaster claim.  However there are exceptions to that general rule and you may still be able to recover for losses if they arise through no fault of your own.

Keep in mind also that a refund will not be available to you if you’ve received insurance proceeds covering the amount of the tax (as well as the amount of the lost product). That’s only fair, since getting a refund would basically be double-dipping.

Good luck.  And stay safe.

 

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