Ever take a look at BROP and scratch your head? Well, your life just got a whole lot better. The TTB has graciously acted on its mandate to help encourage voluntary compliance and put together a detailed tutorial for Brewery Audits that includes sections regarding inventory and reporting. The Section on the Brewer and Brew Pub Report of Operations is so chalked full of information that we wanted to take the time to share the whole section with you:
Under 27 CFR 25.297, a brewer who produces 10,000 or more barrels of beer per calendar year, must prepare and submit the BROP monthly. Brewers who produce less than 10,000 barrels of beer per calendar year and do not file a Brewpub Report of Operations may file the BROP quarterly. Brewpubs that produce 5,000 barrels of beer per calendar year or less and do not bottle or keg their beer for removal from their breweries may report their operations on the Brewpub Report of Operations TTB F 5130.26.
Brewers must notify TTB before the calendar quarter in which they want to begin submitting quarterly filings. To elect quarterly filing, brewers may add a comment in the “Remarks” section of the BROP indicating that they intend to start filing quarterly. Brewers beginning business and intending to file quarterly must state under the “Remarks” section of their initial monthly BROP that their annual production of beer is unlikely to exceed 10,000 barrels.
If the brewer determines that the brewer will exceed 10,000 barrels for a calendar year in any month, the brewer must file a BROP for that month and for all subsequent months of the calendar year.
Brewers must retain copies of all BROPs they submit to TTB.
Most Common BROP Issues
One of the most common errors that brewers make is that they file their BROPs late or not at all.
Below are the sections of the BROP where TTB finds errors most frequently:
- Line 2: Brewers fail to enter a correct amount for beer “produced by fermentation.” Brewers may not include in this amount beer they did not produce on their premises, such as beer they received from other breweries, beer in cellars, or beer returned to the brewery.
- Line 8: Brewers incorrectly report receipts of beer from other breweries that are not under the same ownership (This line is for beer returned to the brewery after removal from another brewery under the same ownership).
- Line 11: Brewers improperly use line 11 (physical inventory disclosed overage) and line 31 (physical inventory disclosed shortage) to balance an inventory discrepancy.
- Line 14: Brewers must enter taxable removals under line 14. This is a crucial amount because tax is determined on this amount. Brewers may not enter the difference between taxable removals and taxpaid or tax-determined beer returned to the brewery (which brewers must report on line 7) on this line.
- Line 15: Brewers often improperly report the “on premises” consumption amount (line 21) as a “tavern removal” amount under line15. Brewers also fail to report transfers to the tavern appropriately on line 15b. “Tavern” means a portion of brewery premises where the brewer sells beer to consumers (27 CFR 25.25). Beer sold from a tavern is taxable. Beer consumed on premises without charge, for example in a tasting room, is not taxable.
- Line 16: Brewers who report beer removed without payment of tax for export often do not enter the correct amount of beer removed for export during the reporting period. In other cases, brewers improperly enter the difference between beer removed for export and beer that was exported and returned to the brewery.
- Line 18: Brewers may not estimate the amount of beer removed without payment of tax for use in research, development, or testing. Brewers must ensure that all such removals from the brewery without payment of tax are accurately reported as exact amounts or TTB may treat the discrepancy as a taxable removal.
- Lines 30 and 31: Brewers often fail to report inventory shortages or they report inventory shortages incorrectly. Brewers reporting losses on the BROP must ensure that they report on inventory records the exact amount revealed when taking inventory. Some brewers confuse losses (such as losses occurring during cellar operations or theft), which they must report on line 30, with “Physical inventory disclosed as a shortage,” which they must report on line 31. Shortages are revealed when the inventory count is different from book inventory.
Brewers are not required to explain inventory shortages that occur during cellar operations under “Part 5 – Remarks.” However, as part of the brewer’s explanation required under “Part 5 – Remarks,” brewers must report whether the shortage of finished goods was in cans, bottles, or kegs. Brewers who report shortages on line 31 must enter the amount in barrels, and not by package type (cans, bottles, or kegs). For more discussion on losses and shortages, see Records Issue 2 — Inventory Records.
How to Avoid BROP Issues
- Review 27 CFR 25.297. This regulation requires you to submit either a BROP monthly or quarterly.
- Make sure that you complete, sign, and file the BROP on time (submit it by the fifteenth day after the end of its reporting period).
- Put the total amount of an item rather than a net amount on the BROP.
- When you fill out the Brewer’s Report of Operations, be aware of the differences between losses (Line 30) and shortages (Line 31). See Records Issue 2 — Inventory Records.
- If you have questions, you may contact the Beer Excise Tax Group at the NRC.