Surety Bond Encyclopedia

Operations (Area) Bond - Distilled Spirits in All States

Brief Summary

If you run two or more distilled spirits plants, one area operations bond can replace a separate operations bond at every location. The penal sum is figured on a sliding scale under 27 CFR 19.166, so the combined bond usually costs far less coverage than stacking single plant bonds, and it is filed with TTB on the same Distilled Spirits Bond form, TTB F 5110.56.

An area operations bond is a federal TTB bond that covers operations at two or more distilled spirits plants, plus any adjacent bonded wine cellars, run by the same proprietor. It replaces the single plant operations bonds those locations would otherwise need. The penal sum starts at 100% of the plants' combined single plant requirements up to $300,000 and then steps down by percentage on each higher band.

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How to Apply for an Operations (Area) Bond:

List every plant and adjacent bonded wine cellar the bond will cover, with registration numbers.
Calculate the single plant penal sum for each location under 27 CFR 19.166(a), then total them.
Apply the area schedule in 27 CFR 19.166(b) to reach the required penal sum.
Name every operating corporation as a principal and have each one sign.
Have a Circular 570 surety execute TTB F 5110.56 with a power of attorney for the signing agent.
Submit the bond to TTB with the registration or an amendment to TTB F 5110.41.

Detailed Information About the All States Operations (Area) Bond:

What the bond covers

Every distilled spirits plant needs an operations bond on TTB F 5110.56 before TTB will approve its registration, unless the proprietor qualifies for the small taxpayer exemption in 27 CFR 19.151(d). Under 27 CFR 19.163, a proprietor operating more than one plant in the area served by the National Revenue Center can file one area operations bond for any two or more of those plants and any adjacent bonded wine cellars. It carries the same terms as the single plant bonds it replaces. The full penal sum backs every covered location and cannot be divided among them.

How the penal sum is figured

First work out what each plant would need on its own under 27 CFR 19.166(a). That figure depends on whether the plant distills, warehouses, processes, or does a combination, and on whether it has an adjacent wine cellar. Add those figures together, then apply the area schedule in 19.166(b).

Combined total up to $300,000: 100% of the total.
Over $300,000 up to $600,000: $300,000 plus 70% of the amount over $300,000, capped at $510,000.
Over $600,000 up to $1,000,000: $510,000 plus 50% of the amount over $600,000, capped at $710,000.
Over $1,000,000 up to $2,000,000: $710,000 plus 35% of the amount over $1,000,000, capped at $1,060,000.
Over $2,000,000: $1,060,000 plus 25% of the amount over $2,000,000.

Who can be on one bond

Only plants operated by the same person qualify. A corporation and its controlled subsidiaries, meaning companies where the parent controls more than 50% of the voting power, count as one person. Each operating corporation must be named as a principal and sign the bond.

Small taxpayer exemption

A proprietor paying tax on a deferred basis who is eligible for annual or quarterly returns under 27 CFR 19.235 does not need bond coverage for spirits for nonindustrial use. Spirits for industrial use still need a bond. Once tax due in a calendar year passes $50,000, the proprietor has 30 days to file an operations bond under 19.168(b).

Who can write it

The surety must hold a certificate of authority listed in Treasury Department Circular 570. TTB also accepts a bond backed by pledged U.S. Treasury securities or cash under 27 CFR 19.154.

Eligibility and Requirements for an All States Operations (Area) Bond:

Two or more distilled spirits plants operated by the same person or by a parent and its controlled subsidiaries.
Plants located within the area served by the National Revenue Center.
Surety listed in Treasury Department Circular 570.
Penal sum not less than the 27 CFR 19.166(b) figure, available in full at every covered location.
Bond filed on TTB F 5110.56 as a two sided document.

All States Operations (Area) Bond FAQs:

How much does the area operations bond have to be?

Add up the single plant operations bond amounts under 27 CFR 19.166(a). Up to $300,000 the bond equals that total. Above $300,000 the regulation applies declining percentages, 70%, 50%, 35% and then 25%, to each higher band.

Can I split the penal sum between my plants?

No. Under 27 CFR 19.163 the penal sum cannot be allocated among locations. The whole amount must be available for a liability at any covered plant or wine cellar.

Does this bond cover tax deferred withdrawals?

No. An operations bond covers tax on production and storage at the plants. Withdrawals on a tax deferred basis need a withdrawal bond, or you can combine both in a unit bond under 27 CFR 19.165.

Can a sister company's plant go on the same bond?

Only if both are the same person under the rule. A parent and its controlled subsidiaries qualify. Two companies owned by the same individual but not linked by more than 50% voting control do not.

What does the premium cost?

The surety prices the bond on the penal sum and on the proprietor's credit, financial statements and tax history. Larger penal sums usually call for company financials.