Written by One of the most important costs to consider as a distiller is payment of your federal excise taxes. Every proof gallon you produce is taxed at $2.70 per proof gallon for the first 100,000 gallons, and $13.34 per proof gallon for amounts up to about 22 million gallons. Timely filing and payment of taxes is critical to ensuring TTB compliance.
If you are late on either filing or payment, the TTB will issue you a notice and demand of tax assessment, which tacks on penalties and interest to the amounts owed. A notice and demand from the TTB is never good news, but fortunately there is an option to reduce your liability by entering into an Offer in Compromise.
Under U.S.C. Titles 56 and 57, the TTB may settle and resolve tax related violations for less than the full amount owed.. For distilleries, this often means penalties under 26 U.S.C. § 6651(a)(1) for failure to file federal excise tax returns and § 6651(a)(2) for failure to pay those taxes.
Two grounds exist for the TTB’s acceptance of an Offer in Compromise: doubt as to liability for the amount of taxes owed, or doubt as to collectability of the full amount. Doubt as to liability can result in more complex discussion with the TTB since it involves contesting the amounts owed. In our firm’s experience, doubt as to collectability is the most common reason for distilleries to consider an Offer in Compromise.
If your Offer in Compromise is based on doubt as to collectability, you will be required to submit significant financial disclosures to the TTB, including tax returns, bank account statements, and more. Ultimately, the Agency will evaluate whether the proposed compromise represents the most it can expect to collect within a reasonable timeframe.
You’ll also need to determine when and how much to pay: in a lump or in installments. The former means five or fewer installments, while the latter often involves payments over a period of years.
For businesses facing significant federal excise tax liabilities or regulatory penalties, a TTB Offer in Compromise can provide a realistic path toward resolution while preserving the growth and viability of your distillery. With the right guidance and documentation, companies can negotiate an agreement that protects operations, preserves permits, and brings them back into full compliance.
Our firm can help you navigate and negotiate an Offer in Compromise to put you in the strongest position to reduce your federal tax liability.
Thanks to attorney and liquor team member, Ryan Mercurio, for authoring this article.
Last modified: February 11, 2026
