Surety Bond Encyclopedia

Operations (one plant) Bond - Distilled Spirits in All States

Brief Summary

Many small distilleries do not need this bond at all, and for everyone else the amount depends on what the plant is qualified to do. A plant that owed $50,000 or less in federal excise tax last year and expects the same this year can run nonindustrial production without a bond. Once you pass that line, the operations bond is sized to your tax exposure within the federal minimum and maximum, and a surety bond covers it without tying up cash or Treasury securities.

The distilled spirits operations bond is a federal bond filed with the Alcohol and Tobacco Tax and Trade Bureau (TTB) on form TTB F 5110.56. 26 U.S.C. 5173 and 27 CFR 19.161 require it from anyone establishing a distilled spirits plant, unless the 26 U.S.C. 5551(d) exemption applies. For one plant, 27 CFR 19.166 sets the penal sum by the tax on the spirits involved, with minimums from $5,000 to $15,000 and maximums from $50,000 to $250,000 depending on the operations the plant is qualified for.

We can help with all All States bonds!

How to Apply for a Operations (one plant) Bond:

Check eligibility for the $50,000 exemption: tax liability of $50,000 or less last calendar year and a reasonable expectation of the same this year.
Identify every activity the plant is qualified for (distiller, warehouseman, processor) to find the right row in 27 CFR 19.166.
Calculate the penal sum from your tax exposure and apply the minimum and maximum for that row.
Complete the surety application and have TTB F 5110.56 executed by the surety.
Submit the bond to TTB with the plant registration, or within 30 days of first passing $50,000 in a calendar year.
Increase the bond if liabilities grow beyond the coverage.

Detailed Information About the All States Operations (one plant) Bond:

Check the exemption first

Since the PATH Act changes took effect on January 1, 2017, a proprietor that pays tax on a deferred basis and is eligible to file quarterly or annual returns under 27 CFR 19.235 does not need a bond for operations and withdrawals of spirits for nonindustrial use. Quarterly eligibility requires that you reasonably expect to be liable for not more than $50,000 in taxes for the calendar year and were liable for not more than $50,000 in the preceding calendar year. The statutory basis is 26 U.S.C. 5551(d).

The exemption does not reach industrial use. Under 27 CFR 19.151(d)(2), a proprietor must still bond operations and withdrawals of distilled spirits for industrial use even if it qualifies for quarterly or annual returns.

When the exemption ends

If your aggregate tax due in a calendar year first exceeds $50,000, 27 CFR 19.168(b) requires you to submit an operations bond on TTB F 5110.56 no later than 30 days after that date. A withdrawal bond has no grace period. You may not withdraw spirits from bond on a tax deferred basis until TTB approves it.

How the penal sum is set for one plant

27 CFR 19.166 bases the bond on tax liability, with a floor and a ceiling for each type of plant.

Distiller: tax on spirits produced during a 15-day period. Minimum $5,000, maximum $100,000.
Warehouseman: tax on spirits and wines deposited in, stored on, and in transit to, the bonded premises. Minimum $5,000, maximum $200,000.
Warehouseman limited to storage of spirits in packages to a total of not over 50,000 proof gallons: minimum $5,000, maximum $50,000.
Distiller and warehouseman: minimum $10,000, maximum $200,000.
Distiller and processor: minimum $10,000, maximum $200,000.
Warehouseman and processor: minimum $10,000, maximum $250,000, or $50,000 when limited to 50,000 proof gallons.
Distiller, warehouseman and processor: minimum $15,000, maximum $250,000.

If the bond is below the maximum and your liabilities grow past the coverage, 27 CFR 19.167 requires you to increase it.

The operations bond is not the withdrawal bond

The operations bond covers activity at the plant. Removing spirits from bond before paying tax takes a separate withdrawal bond under 27 CFR 19.164, or a unit bond under 19.165 that combines the two. Proprietors with several plants under the same ownership may use an area operations bond under 19.163 instead of one bond per plant.

Filing

The operations bond is filed with TTB on TTB F 5110.56, Distilled Spirits Bond, together with the original application to register the plant. Bond amendments are filed through Permits Online when the original application was filed there.

Eligibility and Requirements for a All States Operations (one plant) Bond:

Bond on form TTB F 5110.56, Distilled Spirits Bond.
Filed with the Alcohol and Tobacco Tax and Trade Bureau.
Penal sum between the minimum and maximum set in 27 CFR 19.166 for the plant's qualified operations.
A corporate surety under 27 CFR 19.153, or a deposit of securities or cash under 27 CFR 19.154.
Separate withdrawal or unit bond if spirits leave bond before tax is paid.

All States Operations (one plant) Bond FAQs:

Does my small distillery need an operations bond?

Not for nonindustrial spirits if you were liable for $50,000 or less in federal excise tax in the preceding calendar year and reasonably expect the same for the current year. Spirits for industrial use still require a bond.

How much is the operations bond for one plant?

It depends on what the plant is qualified to do. A distiller's bond equals the tax on spirits produced in a 15-day period, with a $5,000 minimum and $100,000 maximum. Combined operations carry higher limits, up to $250,000 for a distiller, warehouseman and processor.

What happens if I pass $50,000 in tax during the year?

You must submit an operations bond on TTB F 5110.56 within 30 days of the first date your aggregate tax for the year exceeds $50,000. You cannot withdraw spirits on a tax deferred basis until TTB approves a withdrawal bond.

Does the operations bond cover withdrawals?

No. Withdrawals before tax payment need a withdrawal bond under 27 CFR 19.164, or a unit bond under 19.165 that covers both operations and withdrawals.

Do I need to raise the bond as production grows?

Yes, until you reach the maximum. Under 27 CFR 19.167, if liabilities exceed the coverage of a bond that is below the maximum, the proprietor must increase it.