TTB Industry Circular
July 5, 2019
Number: 2019 – 2
Temporary Voluntary Disclosure Program for Alcohol Beverage Wholesalers and Importers to Address Unreported Changes in Control or Proprietorship
To: Wholesalers and Importers of Alcohol Beverages
Through December 31, 2019, the Alcohol and Tobacco Tax and Trade Bureau (TTB) is offering a temporary voluntary disclosure program to address the significant number of wholesalers and importers of alcohol beverages who have undergone a change in control or change in proprietorship but failed to file a new permit application within 30 days of the change, as required by law. A supplement to our existing Voluntary Disclosure Program (TTB Industry Circular 2004-5), this temporary program provides a streamlined approach that allows eligible wholesalers and importers to file the appropriate application and benefit from the enforcement discretion described in this Industry Circular.
2. Program Background
Through its education and enforcement activities under the Federal Alcohol Administration Act (FAA Act), TTB has discovered a number of instances where alcohol beverage wholesalers or importers were operating without a valid FAA Act permit due to unreported changes in control or proprietorship. In recent months, TTB has also received a substantial number of voluntary disclosures from wholesalers and importers of alcohol beverages who discovered on their own that they had failed to report such changes.
Normally, an industry member can report a self-identified compliance issue through TTB’s existing Voluntary Disclosure Program, described in Industry Circular 2004-5. Under the existing program, an industry member would submit the voluntary disclosure and, upon receiving individualized instructions from TTB, would then submit the appropriate information for a change in control or change in proprietorship.
Through this temporary program, eligible wholesalers and importers1 can simultaneously voluntarily disclose the unreported changes in control or proprietorship and file an application for a new permit. By combining the process for making a voluntary disclosure with the permit application process, this temporary program reduces the burden on eligible industry members while also providing TTB a short-term process to specifically address the increased volume of submissions related to these disclosures. For eligible industry members participating in this temporary program, TTB will also exercise enforcement discretion regarding these unreported changes, as explained in section 6.
3. Eligibility for Temporary Voluntary Disclosure Program
This Temporary Voluntary Disclosure Program is open to industry members who:
- Hold a TTB permit only as a wholesaler and/or importer of alcohol beverages and no other TTB permit, notice, or registration;
- Self-identify a change in control or proprietorship and voluntarily disclose it by following the instructions provided in this Industry Circular;2 and
- Submit all required documentation described in this Industry Circular no later than December 31, 2019.
4. Explanation of Changes in Control and Proprietorship
In general, when there is a change in who controls a business (referred to as a “change in control”) or a change in the person or entity that owns a business (referred to as a “change in proprietorship”), the FAA Act requires a new permit application to be submitted within 30 days of the change. Under the statute, business operations may continue uninterrupted until TTB takes action on the application, provided that the permittee or transferee timely files the new permit application. If the application is not timely filed, however, the business’s permit automatically terminates and the business must re-qualify with TTB.3 See 27 U.S.C. 204(g); 27 CFR 1.44. If a permit has automatically terminated, then the business may not lawfully conduct operations for which a permit is required. Operation without the required permit may subject the business to civil and criminal penalties. To resume operations in compliance with Federal law, a business whose permit has automatically terminated must apply for and obtain a new permit.
Change in Control. TTB generally uses the term “change in control” where there has been a change in either actual or legal control of the business, but the business entity itself remains the same. A change in legal control occurs when there has been a change in the person or entity that owns or controls the majority of ownership interest in the business. A change in actual control occurs when there is a change in the person or entity who exercises managerial control over the operations of the business. Some examples of a change in control include, but are not limited to:
- Any change of the person or entity controlling more than 50 percent of the ownership interest of the business, including, but not limited to, a transfer of ownership interest among family members or a transfer of ownership interest to a trust.
- An overall change of more than 50 percent of the ownership interest compared to what the business has on file with TTB. For example, a business has three owners (A, B, and C) who each hold one-third of the ownership interest. Owner A sells her interest to a new owner. Owner B sells his interest to a new owner. As a result of these two transactions, there has been a change in more than 50 percent of the ownership interest.
- A change of officers, directors, or other management may constitute a change in actual control depending on the circumstances. For example, a change to an officer that exercises managerial control over a business’s regulated operations will likely constitute a change in control.
Change in Proprietorship. TTB generally uses the term “change in proprietorship” where there has been a change in the person or entity that owns the business. For example, a change in proprietorship occurs when a business is sold to a new person or entity; when the business changes entity type, such as from a corporation to a limited liability company; or when there is a change of general partners within a partnership.
5. Disclosing Unreported Changes in Control or Proprietorship through this Temporary Voluntary Disclosure Program
To participate in this program, the industry member4 must file: a) an application for a new permit; and b) a written request for acceptance of the voluntary disclosure and certification. Please note that eligible industry members who have already submitted a voluntary disclosure regarding an unreported change in control or proprietorship should also follow the instructions outlined in this Industry Circular.
- Permit Application
TTB strongly encourages industry members to file their applications electronically through Permits Online, TTB’s web-based system for submitting and tracking permit applications. Filing applications via Permits Online will expedite the process for industry members and for TTB. Detailed instructions for using Permits Online for this Temporary Voluntary Disclosure Program can be found in Attachment B and Attachment C.
Alternatively, industry members may complete and submit TTB Form 5100.24 – Application for Basic Permit Under the Federal Alcohol Administration Act as part of their disclosure submission. Instructions for filing paper submissions can be found in Attachment D.
- Request and Certification
To participate in this Temporary Voluntary Disclosure Program, the industry member must also submit or upload with its application a signed, written statement on company letterhead requesting that TTB accept the voluntary disclosure under this Temporary Voluntary Disclosure Program. Consistent with the scope of TTB’s exercise of enforcement discretion addressed in section 6 below, the written statement must also contain a certification that the industry member expressly acknowledges and consents that, if TTB approves the application and issues a new permit, TTB may take action against the new permit for violations (other than the unreported change in control or proprietorship) that took place prior to the issue date of the new permit. A sample statement is provided in Attachment A.
6. Enforcement Discretion
For industry members that are eligible for this Temporary Voluntary Disclosure Program, TTB will exercise its enforcement discretion by not seeking civil or criminal penalties for continuing to operate while TTB reviews applications submitted in accordance with this program. Moreover, TTB will not seek to deny these applications on the sole basis that the industry member operated without a permit, provided the industry member otherwise operated in compliance with the statutes and regulations administered by TTB, and provided that the industry member (including any officers, directors, or principal interest holders) is not disqualified from obtaining a permit.
TTB has the authority to investigate and take appropriate action in response to other possible violations discovered during the course of TTB’s review of the voluntary disclosure submission and/or subsequent audits or investigations. TTB action based on other possible violations, which could include permit suspension or revocation, would be subject to the applicable statute of limitations and due process requirements.
7. Disclosures for Ineligible Industry Members and/or Other Unreported Changes
Industry members with TTB permits, notices, and registrations other than wholesaler and importer permits, while not eligible for this temporary program, are encouraged to use the existing Voluntary Disclosure Program described under Industry Circular 2004-5 to come into compliance regarding unreported changes in control and proprietorship. The benefits of using the existing Voluntary Disclosure Program include the exercise of similar forms of enforcement discretion, including reduced penalties and other special considerations if TTB proposes administrative action.
In addition, the Temporary Voluntary Disclosure Program outlined in this document applies only to unreported changes in control and proprietorship. Alcohol beverage wholesalers or importers that have other unreported changes to management, officers, directors, or interest holders that do not constitute a change in control are encouraged to contact the National Revenue Center at the telephone number or email address below.
Industry members who have a compliance issue other than unreported changes related to their permit may report those violations through the existing Voluntary Disclosure Program.
Questions. If you have any questions concerning this Industry Circular, please contact the National Revenue Center at 877-882-3277 or by email at CIC2019@ttb.gov.
Mary G. Ryan
Alcohol and Tobacco Tax and Trade Bureau
- Attachment A: Sample Request and Certification
- Attachment B: Change in Control - Permits Online Instructions
- Attachment C: Change in Proprietorship - Permits Online Instructions
- Attachment D: Instructions for Filing Paper Applications (change in control and change in proprietorship)
1 For eligibility requirements, see section 3.
2 This does not apply to changes in control or proprietorship already discovered by TTB, or to industry members who have been notified of a TTB investigation or audit.
3 Permits to operate as a wholesaler or importer of alcohol beverages are issued under the FAA Act. While the FAA Act does not explicitly include the concept of a “change in proprietorship,” the longstanding position of TTB and its predecessor agencies is that a change in proprietorship also falls within the 30-day reapplication requirement applicable to changes in control for FAA Act permits. This Industry Circular explains the two types of changes because different application instructions apply to the different types of changes.
4 The person filing the required documentation must have authority to represent the business through signing authority or power of attorney.
Page last reviewed: July 7, 2019
Page last updated: July 7, 2019
Maintained by: Regulations and Rulings Division