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June 04.2009

Alternating Proprietors Beware: TTB Scrutiny of AP Agreements

by Susan Cagann

TTB now limits how APs can get the job done.  Last year, TTB issued Advisory 2008-4.  Even if you read this industry guidance for alternating proprietorsand submit an AP agreement following its guidance, your agreement may be rejected.  As we all know, an AP agreement must demonstrate that the alternator is really making wine, is truly in control, and is responsible for production, record keeping and taxes.  Often an AP will contract with a consultant, labor provider or even the host winery to have some work done, such as a pumpover, cleaning out a line, or moving a barrel.  The mere fact that a service is provided by someone other than an AP employee should not change the fundamental nature of the relationship so long as the agreement clearly spells out that the AP is responsible for the work and in charge of its winery.  In the last month, TTB analysts have rejected AP agreements that contain any provision that allows the host winery or host winery employees to provide services for the alternator.  Today, TTB's position is:  "The tenant winery can contract with the Host (or other) winery to perform certain activities but the wine must first be transferred in bond to the Host winery and the Host winery would conduct those operations under its own bond.  It should however be noted that such transfers could potentially impact issues such as estate bottled claims."

If you are interested in this issue, please let us know.  We wish to work productively with TTB and  ensure that the guidance provided by Advisory 2008-4 is applied fairly to all wineries.

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Comments

This couldn't come at a worse time--though of course, it could. At least it's not August, and we have a little time to try to maneuver. There are already inconsistencies in how it's being applied to pending applications, and it's anyone's guess how it will affect long-standing operations under previously approved agreements. If the purpose is to sort out custom crush customers from legitimate alternating proprietors, there are other ways to identify them. I hope we can work together for a re-interpretation.

Posted by: Lynne Carmichael | Jun 5, 2009 7:28:36 AM

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