1513-0104 Law and Reg.

1513-0104

26 U.S.C.

Sec. 5041 Imposition and rate of tax.

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(c) Credit for small domestic producers

(1) Allowance of credit

Except as provided in paragraph (2), in the case of a person who produces not more than 250,000 wine gallons of wine during the calendar year, there shall be allowed as a credit against any tax imposed by this title (other than chapters 2, 21, and 22) of 90 cents per wine gallon on the 1st 100,000 wine gallons of wine (other than wine described in subsection (b)(4)) which are removed during such year for consumption or sale and which have been produced at qualified facilities in the United States.

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(6) Credit for transferee in bond. If--

(A) wine produced by any person would be eligible for any credit under paragraph (1) if removed by such person during the calendar year,

(B) wine produced by such person is removed during such calendar year by any other person (hereafter in this paragraph referrred to as the ‘transferee’) to whom such wine was transferred in bond and who is liable for the tax imposed by this section with respect to such wine, and

(C) such producer holds title to such wine at the time of its removal and provides to the transferee such information as is necessary to properly determine the transferee’s credit under this paragraph,

Then the transferee (and not the producer) shall be allowed the credit under paragraph (1) which would be allowed to the producer if the wine removed by the transferee had been removed by the producer on that date.

(7) Regulations

The Secretary may prescribe such regulations as may be necessary carry out the purposes of this subsection, including regulations -

(A) to prevent the credit provided in this subsection from benefiting any person who produces more than 250,000 wine gallons of wine during a calendar year, and

(B) to assure proper reduction of such credit for persons producing more than 150,000 wine gallons of wine during a calendar year.

27 CFR

Sec. 24.278 Tax credit for certain small domestic producers.

(a) General. A person who produces not more than 250,000 gallons of

wine during the calendar year may take a credit against any tax imposed

by Title 26 of the United States Code (other than Chapters 2, 21, and

22), in an amount computed in accordance with paragraph (d) of this

section, on the first 100,000 gallons of wine (other than champagne and

other sparkling wine) removed during that year for consumption or sale.

This credit applies only to wine that has been produced at a qualified

bonded wine premises in the United States. The small domestic wine

producer tax credit is available only to eligible proprietors engaged in

the business of producing wine. A proprietor who has a basic permit to

produce wine but does not produce wine during a calendar year may not

take the small producer wine tax credit on wine removed during that

calendar year. A proprietor who has obtained a new wine producer basic

permit may not take the small producer wine tax credit on wine removed

until the proprietor has produced wine. ``Production'' of wine includes

those activities described in paragraph (e)(1) of this section.

(b) Special rules relating to eligibility for wine credit--(1)

Controlled groups. For purposes of this section and Sec. 24.279, the

term ``person'' includes a controlled group of corporations, as defined

in 26 U.S.C. 1563(a), except that the phrase ``more than 50 percent''

must be substituted for the phrase ``at least 80 percent'' wherever it

appears. Also, the rules for a ``controlled group of corporations''

apply in a similar fashion to groups that include partnerships and/or

sole proprietorships. Production and removals of all members of a

controlled group are treated as if they were the production and removals

of a single taxpayer for the purpose of determining what credit a person

may use.

(2) Credit for transferees in bond. A person other than the eligible

small producer (hereafter in this paragraph referred to as the

``transferee'') may take the credit under paragraph (a) of this section

that would be allowed to that producer if the wine removed by the

transferee had been removed by the producer on that date, under the

following conditions:

(i) Wine produced by any person would be eligible for any credit

under this section if removed by that person during the calendar year;

(ii) Wine produced by that person is removed during that calendar

year by the transferee to whom that wine was transferred in bond and who

is liable for the tax imposed by 26 U.S.C. 5041 with respect to that

wine;

(iii) That producer holds title to that wine at the time of its

removal and provides to the transferee such information as is necessary

to properly determine the transferee's credit under this paragraph; and

(iv) At the time of taxable removal, the producer provides to the

transferee, in writing (each retaining a copy with the record of taxpaid

removal from bond pursuant to Sec. 24.310), the following information:

(A) The names of the producer and transferee;

(B) The quantity and tax class of the wines to be shipped;

(C) The date of removal from bond for consumption or sale;

(D) A confirmation that the producer is eligible for credit, with

the credit rate to which the wines are entitled; and

(E) A confirmation that the subject shipment is within the first

100,000 gallons of eligible wine removed by (or on behalf of) the

producer for the calendar year.

(c) Time for determining and allowing credit. The credit referred to

in paragraph (a) of this section will be determined at the same time as

the tax is determined under 26 U.S.C. 5041(a), and will be allowable at

the time any tax described in paragraph (a) of this section is payable.

The credit allowable by this section is treated as if it constitutes a

reduction in the rate of the tax.

(d) Computation of credit. The credit which may be taken on the

first 100,000 gallons of wine (other than champagne and other sparkling

wine) removed for consumption or sale by an eligible person during a

calendar year is computed as follows:

(1) For persons who produce 150,000 gallons or less of wine during

the calendar year, the credit is $0.90 per gallon for wine ($0.056 for

hard cider);

(2) For persons who produce more than 150,000 gallons but not more

than 250,000 gallons during the calendar year, the credit is reduced by

1 percent for every 1,000 gallons produced in excess of 150,000 gallons.

For example, the credit that would be taken by a person who produced

160,500 gallons of wine and hard cider during a calendar year would be

reduced by 10 percent, for a net credit against the tax of $0.81 per

gallon for wine or $0.0504 for hard cider, as long as the wine or hard

cider was among the first 100,000 gallons removed for consumption or

sale during the calendar year.

(e) Definitions--(1) Production. For purposes of determining if a

person's production of wine is within the 250,000 gallon limit,

production includes, in addition to wine produced by fermentation, any

increase in the volume of wine due to the winery operations of

amelioration, wine spirits addition, sweetening, or production of

formula wine. Production of champagne and other sparkling wines is

included for purposes of determining whether total production of a

winery exceeds 250,000 gallons. Production includes all wine produced at

qualified bonded wine premises within the United States and wine

produced outside the United States by the same person.

(2) Removals. For purposes of determining if a person's removals are

within the 100,000 gallon limit, removals include wine that the person

removed from all qualified bonded wine premises within the United

States. Wine removed by a transferee in bond under paragraph (b)(2) of

this section must be counted against the 100,000 gallon limit of the

small producer who owns that wine, and not against the limit of the

transferee in bond if the transferee is also a small producer. Champagne

and other sparkling wines, which are not eligible for credit, do not

count as removals against the 100,000 gallon limit.

(f) Preparation of tax return. A person who is eligible for the

credit must show the amount of wine tax before credit on the Excise Tax

Return, TTB F 5000.24, and must enter the quantity of wine subject to

the credit and the applicable credit rate as the explanation for an

adjusting entry in Schedule B of the return for each tax period. Where a

person does not use the credit authorized by this section to directly

reduce the rate of Federal excise tax on wine, that person must report

on TTB F 5000.24 where the credit will be, or has been, applied. Where a

transferee in bond takes credit on behalf of one or more small

producers, the transferee must show in Schedule B of the return the name

of each producer, each producer's credit rate, and the total credit

taken on behalf of each producer during the tax return period.

(g) Denial of deduction. Pursuant to 26 U.S.C. 5041(c)(5), any

deduction under 26 U.S.C. subtitle A with respect to any tax against

which the credit is allowed under paragraph (a) of this section must

only be for the amount of the tax as reduced by the credit.

(h) Exception to credit. The appropriate TTB officer will deny any

tax credit taken under paragraph (a) of this section where it is

determined that the allowance of the credit would benefit a person who

would otherwise fail to qualify for the use of the credit.

(26 U.S.C. 5041(c).)

(Approved by the Office of Management and Budget under control number

1513-0104)

[T.D. TTB-64, 72 FR 65454, Nov. 21, 2007]