TTB Public Guidance

Tax-Free Withdrawal of Distilled Spirits and Products Containing Distilled Spirits for Hand Sanitizer Purposes under the CARES Act and TTB Guidance

May 18, 2020
TTB G 2020-4

Overview

TTB guidance, “Production of Hand Sanitizer to Address the COVID-19 Pandemic” (TTB G 2020-1A), relieved distilled spirits permittees of certain Internal Revenue Code (IRC) requirements through June 30, 2020, to facilitate hand sanitizer production.  Congress then provided additional flexibilities for hand sanitizer production for all of calendar year 2020 through the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), Pub. L. No. 116-136.  The CARES Act allows distilled spirits plants (DSPs) to withdraw distilled spirits free of tax for use in or contained in hand sanitizer that is produced and distributed in a manner consistent with FDA guidance such as, “Guidance for Industry: Temporary Policy for Preparation of Certain Alcohol-Based Hand Sanitizer Products During the Public Health Emergency (COVID-19)” (March 2020), not limited to hospitals and certain other designated producers, as prior law and TTB guidance required.

Since the exemptions authorized under TTB’s prior guidance are separate from the CARES Act, distilled spirits permittees can continue to operate under those exemptions even if they also conduct separate operations under the CARES Act as discussed further below.  TTB is extending its approval of these exemptions through December 31, 2020.

This document provides guidance in a question-and-answer format about tax-free withdrawals of distilled spirits and hand sanitizer under the CARES Act and TTB’s exemptions.

Are DSPs allowed to withdraw denatured and undenatured distilled spirits tax-free under the CARES Act?

Yes.  DSPs may withdraw distilled spirits, with or without denaturants, tax-free for use in hand sanitizer that is produced and distributed consistent with FDA guidance related to COVID-19.

Are DSPs who produce hand sanitizer allowed to withdraw the hand sanitizer tax-free under the CARES Act?

Yes.  DSPs who produce hand sanitizer may withdraw the hand sanitizer tax-free under the CARES Act if it is produced and distributed in a manner consistent with FDA guidance related to COVID-19.

Are alcohol fuel plants (AFPs) and beverage DSPs allowed to withdraw distilled spirits and hand sanitizer tax-free without updating their TTB permits?

Yes.  In addition to the exemptions described in TTB G 2020-1A, TTB is exempting AFPs and beverage DSPs from the requirement to obtain additional permits or bonds to produce distilled spirits or hand sanitizer for tax-free withdrawal under the CARES Act. TTB is authorizing this exemption under 26 U.S.C. 5562 through calendar year 2020.

Are persons allowed to receive distilled spirits or hand sanitizer tax-free from DSPs under the CARES Act even if they do not have TTB permits to receive distilled spirits tax-free under other provisions of the IRC?

Yes.  Under the CARES Act, persons who do not have TTB permits may receive tax-free withdrawals of distilled spirits during calendar year 2020 for use in or contained in hand sanitizer that is produced and distributed in a manner consistent with FDA guidance related to COVID-19.

What rules apply to producers of hand sanitizer who do not have TTB permits?

Under the CARES Act, producers of hand sanitizer (including hospitals, state and local governments, and pharmacists) do not have to obtain TTB permits to receive distilled spirits and are not subject to TTB regulation as long as those operations are consistent with applicable FDA guidance.  Any operations involving tax-free distilled spirits outside of the CARES Act would be subject to TTB regulation.

Are persons who hold TTB permits allowed to receive distilled spirits or hand sanitizer tax-free under the CARES Act?

Yes.  Under the CARES Act, persons who hold TTB permits are allowed to receive tax-free withdrawals under the same terms as non-permittees.

What rules apply to producers of hand sanitizer who have TTB permits?

If producers of hand sanitizer use distilled spirits withdrawn tax-free under the CARES Act and also use distilled spirits withdrawn tax-free under other provisions of the IRC, those producers must maintain proper distinctions between these activities, including maintaining separate records required under TTB regulations applicable to permittees receiving tax-free distilled spirits under those other provisions of the IRC.

Are there any permit, registration, or recordkeeping requirements that apply to persons who receive tax-free distilled spirits or hand sanitizer under the CARES Act for subsequent distribution?

Persons who receive tax-free distilled spirits or hand sanitizer under the CARES Act for subsequent distribution are not required to obtain a permit from, or register with, TTB for these operations.  TTB is exempting such persons from the requirement to register with TTB as alcohol beverage dealers under 26 U.S.C. 5124 and 27 CFR part 31.  TTB is authorizing this exemption from registration requirements under the authority of 26 U.S.C. 5562.  Alcohol beverage dealers must still maintain records to the extent required under 26 U.S.C. 5121-5122 and 27 CFR part 31, subpart J.  Among other required information, the records must show the date products are received, the quantity received, and the person from whom received.  If the person receiving the products subsequently sends the products to another alcohol beverage dealer, the person must keep records of the disposition of those products, including the date sent, the quantity sent, and dealer to whom sent.

Is consistency with FDA guidance required for distilled spirits and hand sanitizer to have tax-free status under the CARES Act?

Yes.  The tax-free status of the distilled spirits removed for use or contained in hand sanitizer under the CARES Act applies only to the extent that it is produced and distributed consistent with applicable FDA guidance.  Under 26 U.S.C. 5001(a)(4), any person who removes, sells, transports, or uses distilled spirits withdrawn free of tax in violation of law (e.g., for beverage purposes and not for hand sanitizer purposes consistent with FDA guidance) is required to pay the Federal excise tax.  Any person who removes, sells, or transports tax-free distilled spirits under the CARES Act should ascertain that the ultimate recipient of the tax-free distilled spirits will produce hand sanitizer consistent with FDA guidance.

TTB notes that current FDA guidance states: “FDA is continuing to evaluate other potential formulas for denaturing.  Firms who wish to use different denaturants (bitterants) should contact FDA at This email address is being protected from spambots. You need JavaScript enabled to view it. with ‘DENATURANTS REQUEST’ in the subject line.”

How should DSPs report to TTB their tax-free withdrawals under the CARES Act?

DSPs (including AFPs) should use existing TTB report forms to document their tax-free withdrawals under the CARES Act.  In cases where the transaction field for the line is blank, the proprietor should write the phrase “CARES Act” in the blank space to indicate that the products were produced for withdrawal tax-free under the CARES Act.  Product quantities should be reported in proof gallons or wine gallons in accordance with the instructions on each form.  Below is a summary of the report forms and lines to be used:

Permit Type and Operational Report

Operational Report Lines to Be Used

DSP

Monthly Report of Production Operations
(TTB Form 5110.40)

line 13

DSP

Monthly Report of Storage Operations
(TTB Form 5110.11)

line 21

DSP

Monthly Report of Processing Operations
(TTB Form 5110.28)

lines 21 and 41

DSP (Industrial Only)

Monthly Report of Processing (Denaturing) Operations
(TTB Form 5110.43),

lines 2 and 12, and section III

AFP

Alcohol Fuel Plant Report
(TTB Form 5110.75)

line 15

Proprietors may contact TTB’s National Revenue Center with specific questions about completion of TTB report forms related to withdrawals under the CARES Act.

Are distilled spirits and hand sanitizer withdrawn under the CARES Act subject to any TTB container, marking, or labeling requirements?

Tax-free withdrawals of distilled spirits under the CARES Act should comply with the container and marking requirements in 27 CFR part 19 applicable to distilled spirits for industrial use, but tax-free withdrawals of hand sanitizer produced in accordance with FDA guidance are not subject to any additional TTB container, marking, or labeling requirements.  FDA guidance related to COVID-19 may also include information about the labeling of products withdrawn tax-free under the CARES Act, so DSPs should consult that guidance to ensure that products are labeled consistent with that FDA guidance.

Can DSPs withdraw imported distilled spirits free of tax under the CARES Act?

Yes, imported distilled spirits may be withdrawn tax-free from a DSP under the CARES Act.  While the law does not allow hand sanitizer manufacturers to import tax-free alcohol directly from a foreign producer, alcohol imported in bulk containers may be withdrawn from customs custody and transferred without payment of tax to a TTB-permitted DSP, and subsequently withdrawn tax-free under the CARES Act.  The DSP is responsible for reporting and keeping records of receipt of the imported distilled spirits and subsequent tax-free withdrawals. 

 

Page last updated: May 18, 2020
Page last updated: May 18, 2020
Maintained by: Regulations and Rulings Division