Time Running Out to Take Advantage of TTB’s Amnesty Program

If you own or operate an alcohol distributing or importing business then you are likely familiar with the Alcohol & Tobacco Tax & Trade Bureau’s (“TTB”) Basic Permit compliance requirements. What you may be less familiar with is TTB’s strict laws which apply to Changes in Control and Changes in Proprietorship.

TTB uses the label “Change in Control” for scenarios in which there is a change in either actual or legal control of a business, but where the legal entity survives (e.g. a transfer of 51% of stock ownership).  A change in “legal control” occurs when there is a change in the majority ownership of the entity.  A change in “actual control” occurs when there is a change in the party who exercises managerial control over the operations of the business.

On the other hand, TTB uses the term “Change in Proprietorship” for scenarios in which there is a change in the person or entity that owns the business (i.e. the legal entity does not survive, as in the case of an asset sale).  This also applies where the legal entity converts into a new form, such as converting an LLC into a Corporation.

Where there is a Change in Control or a Change in Proprietorship, the Federal Alcohol Administration Act (or “FAA Act”) requires that either a permit amendment or a new permit application be submitted within 30 days of the change, otherwise the permit expires by operation of law.  Note that the FAA Act only allows for continuous operation contingent upon filing within 30 days for a Change in Control – there is no statutory authority for this rule to apply to a Change in Proprietorship, however TTB states in Industry Circular 2019-2, that the agency’s position is to allow Changes in Proprietorships filed within 30 days to have continuous operation as well.  In any event, if the amendment or new permit reflecting updated control or ownership is not filed within 30 days, the permit expires by operation of law, which can subject the industry member to fines and penalties.

Earlier this year, TTB announced an amnesty program for alcohol wholesalers and importers to disclose any of the unreported changes referenced above.  As part of the amnesty program, TTB allows industry members to disclose these changes up until 12/31/2019, and assuming there are no other significant compliance issues and that the failure to disclose was a good faith error, the program allows TTB the discretion to process the matter without assessing fines or penalties against the industry member.

As I frequently tell industry members with unreported TTB compliance issues: “bad news does not get better with time”.  The same philosophy applies here, as TTB’s amnesty program presents a unique opportunity to disclose the bad news and get right back to business.  However, permit holders need to act fast and file by 12/31/19 in order to take advantage of the amnesty program.

Please contact James Niekamp with any questions.