TTB to Continue Enforcement Actions:

Blog 40

TTB has been in the headlines recently stemming from a Northern California wine cellar operator’s failure to pay excise taxes.  On September 16 of this year, owner and operator of Monterey Wine Services, Brenda Jo Kibbee, received a sentence of nine month’s imprisonment for “intentionally failing to pay Federal excise tax on wine.”  In addition, Kibbee was fined $877,126.94 consisting of $581,177.08 in excise taxes owed, and $295,949.86 in other penalties arising from the court finding that she acted with the intent to defraud the federal government.

The government imposes excise taxes on goods such as alcohol and tobacco that are sold within the country. In the case of alcohol, the excise tax rate for distilled spirits and wines is based on the percent alcohol by volume and for beer is based on the volume of beer in a barrel. 26 USC §5041. For a bonded wine cellar, like Monterey Wine Services, an excise tax is due whenever wine is removed for domestic use. 27 CFR 24.270. Normally, the wine cellar will pay the excise taxes directly to TTB but charge their winery customers for the expense in order to compensate for the cost of the excise tax. In the case of Monterey Wine Cellar, Kibbee charged the winery customers for the excise taxes but failed to deliver those payments to TTB.

The Kibbee case represents just one example of TTB’s strategic efforts to increase enforcement of excise taxes through its Criminal Enforcement Program, which was established in 2011. Although TTB has had criminal enforcement authority for years under the IRC, it wasn’t until 2011 that they gained the resources necessary to effectuate that authority. Historically, TTB has to rely on voluntary compliance from taxpayers in paying their excise taxes and on other Federal enforcement agencies that had overlapping authority to collect taxes due. This changed in 2011, when TTB entered into an interagency agreement with the IRS in which the IRS agreed to use its agents to enforce the criminal provisions under TTB’s jurisdiction in exchange for reimbursement from TTB. According to TTB’s 2011 annual report, the program initiated 21 new cases for fraud investigation with a total tax liability of $20 million for the 2011 fiscal year alone.  In addition, data from TTB’s “Program Summary by Budget Activity” shows that on average TTB collects about $450 of revenue per $1 spent on the enforcement program. As a result, the Criminal Enforcement Program continues to be a driving force for TTB’s mission to collect excise taxes.

For the 2015 fiscal year, TTB has once again listed “enforcing compliance with alcohol, tobacco, firearms, and ammunition laws and regulations, in the interest of collecting all appropriate excise taxes” a key agency goal. With that goal in mind, TTB’s proposed 2015 budget includes a proposal to amend section 251 of the Balanced Budget Emergency Deficit Control Act of 1985, to provide for an additional $2 million to be used for TTB’s Criminal Enforcement Program. TTB believes that expending $2 million in enforcement will reduce the federal deficit through increased revenue collections, because the enforcement program has brought in such a high amount of revenue per dollar spent. Now that TTB can more effectively enforce the collection of excise taxes, it is possible that we will see more cases like Kibbee appear in the coming years.

If you have any questions about compliance with TTB regulations and taxes please don’t hesitate to contact our office!

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