Classification of Brewed Products as “Beer” Under the Internal Revenue Code of 1986 and as “Malt Beverages” Under the Federal Alcohol Administration Act, 41259-41261 [E8-16413]

Agencies

• Alcohol and Tobacco Tax and Trade Bureau
• DEPARTMENT OF THE TREASURY

[Federal Register Volume 73, Number 139 (Friday, July 18, 2008)]
[Rules and Regulations]
[Pages 41259-41261]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-16413]


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DEPARTMENT OF THE TREASURY

Alcohol and Tobacco Tax and Trade Bureau

27 CFR Parts 7, 16, and 25

[TTB Ruling 2008-3]


Classification of Brewed Products as ``Beer'' Under the Internal 
Revenue Code of 1986 and as ``Malt Beverages'' Under the Federal 
Alcohol Administration Act

AGENCY: Alcohol and Tobacco Tax and Trade Bureau, Treasury.

ACTION: Ruling on the classification of brewed products.

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SUMMARY: This document reproduces a ruling issued by the Alcohol and 
Tobacco Tax and Trade Bureau on July 7, 2008, to clarify that that 
certain brewed products classified as ``beer'' under the Internal 
Revenue Code of 1986 do not meet the definition of a ``malt beverage'' 
under the Federal Alcohol Administration Act.

DATES: The ruling was effective on July 7, 2008.

FOR FURTHER INFORMATION CONTACT: Ramona Hupp, Regulations and Rulings 
Division, Alcohol and Tobacco Tax and Trade Bureau, 1310 G Street, NW., 
Room 200-East, Washington, DC 20220; telephone (202) 927-2166.

SUPPLEMENTARY INFORMATION: On July 7, 2008, the Alcohol and Tobacco Tax 
and Trade Bureau (TTB) issued TTB Ruling 2008-3 to clarify that certain 
brewed products classified as ``beer'' under the Internal Revenue Code 
of 1986 do not meet the definition of a ``malt beverage'' under the 
Federal Alcohol Administration Act. We made this ruling available 
through the TTB Web site on July 8, 2008. This ruling is reproduced 
below:

TTB Ruling 2008-3

Classification of Brewed Products as ``Beer'' Under the Internal 
Revenue Code of 1986 and as ``Malt Beverages'' Under the Federal 
Alcohol Administration Act

    In recent months, the Alcohol and Tobacco Tax and Trade Bureau 
(TTB)

[[Page 41260]]

has received inquiries from brewers regarding the labeling standards 
that apply to beers produced from substitutes for malted barley, such 
as rice or corn. We also have fielded questions from brewers and 
importers regarding the appropriate labeling of beers that are made 
without hops. This ruling explains the statutory criteria for 
classification of products as ``beer'' and ``malt beverages'' under the 
applicable laws and regulations.

Laws and Regulations

Federal Alcohol Administration Act
    Sections 105(e) and (f) of the Federal Alcohol Administration Act 
(FAA Act), 27 U.S.C. 205(e) and (f), vest broad authority in the 
Secretary of the Treasury to prescribe regulations with respect to the 
labeling and advertising of wine, distilled spirits, and malt beverages 
that are introduced into interstate or foreign commerce or imported 
into the United States. Section 105(e) also provides that no person may 
bottle, or remove from customs custody in bottles, distilled spirits, 
wine, or malt beverages unless he has obtained a certificate of label 
approval issued in accordance with regulations prescribed by the 
Secretary. Regulations that implement the provisions of Sec. Sec.  
105(e) and (f), as they relate to malt beverages, are set forth in part 
7 of the TTB regulations (27 CFR part 7), Labeling and Advertising of 
Malt Beverages. In the case of malt beverages, the labeling provisions 
of the FAA Act apply only if the laws of the State into which the malt 
beverages are shipped impose similar requirements.
    Section 117(a)(7) of the FAA Act (27 U.S.C. 211(a)(7)) defines the 
term ``malt beverage'' as ``a beverage made by the alcoholic 
fermentation of an infusion or decoction, or combination of both, in 
potable brewing water, of malted barley with hops, or their parts, or 
their products, and with or without other malted cereals, and with or 
without the addition of unmalted or prepared cereals, other 
carbohydrates or products prepared therefrom, and with or without the 
addition of carbon dioxide, and with or without other wholesome 
products suitable for human food consumption.'' The same definition 
appears in the TTB regulations at 27 CFR 7.10.
Internal Revenue Code of 1986
    Chapter 51 of the Internal Revenue Code of 1986 (IRC) sets forth 
excise tax collection and related provisions pertaining to distilled 
spirits, wines, and beer; these provisions and the regulations 
promulgated thereunder are also administered by TTB. Within Chapter 51 
of the IRC, section 5051 (26 U.S.C. 5051) imposes a tax on all beer 
brewed or produced, and removed for consumption or sale, within the 
United States, or imported into the United States. Section 5412 of the 
IRC (26 U.S.C. 5412) provides that beer may be removed from the brewery 
for consumption or sale only in hogsheads, packages, and similar 
containers, marked, branded, or labeled in such manner as the Secretary 
of the Treasury may by regulation require. Regulations that implement 
the Chapter 51 provisions pertaining to beer are set forth in part 25 
of the TTB regulations (27 CFR part 25) and include, in Sec.  25.142 
(27 CFR 25.142), label requirements for beer in bottles.
    Section 5052(a) of the IRC (26 U.S.C. 5052(a)) defines the term 
``beer,'' for purposes of Chapter 51, as ``beer, ale, porter, stout, 
and other similar fermented beverages (including sake or similar 
products) of any name or description containing one-half of 1 percent 
or more of alcohol by volume, brewed or produced from malt, wholly or 
in part, or from any substitute therefor.'' The same definition appears 
in the TTB regulations at 27 CFR 25.11. In addition, with reference to 
what may be a substitute for malt, Sec.  25.15(a) of the TTB 
regulations (27 CFR 25.15(a)) states that ``[o]nly rice, grain of any 
kind, bran, glucose, sugar, and molasses are substitutes for malt.''

``Beer'' versus ``Malt Beverage''

    As indicated above, the definition of a ``beer'' under the IRC 
differs from the definition of a ``malt beverage'' under the FAA Act in 
several significant respects. First, the IRC does not require beer to 
be fermented from malted barley; instead, a beer may be brewed or 
produced from malt or ``from any substitute therefor.'' Second, the IRC 
does not require the use of hops in the production of beer. Third, the 
definition of ``beer'' in the IRC provides that the product must 
contain one-half of one percent or more of alcohol by volume, whereas 
there is no minimum alcohol content for a ``malt beverage'' under the 
FAA Act.
    Accordingly, a fermented beverage that is brewed from a substitute 
for malt (such as rice or corn) but without any malted barley may 
constitute a ``beer'' under the IRC but does not fall within the 
definition of a `` malt beverage'' under the FAA Act. Similarly, a 
fermented beverage that is not brewed with hops may fall within the IRC 
definition of ``beer'' but also falls outside of the definition of a 
``malt beverage'' under the FAA Act.
    It should be noted that sake and similar products are included 
within the definition of ``beer'' under the IRC. See 26 U.S.C. 5052(a). 
However, sake is also included within the definition of a wine under 
the FAA Act, which, among other things, covers only wines with an 
alcohol content of at least seven percent alcohol by volume. See 27 
U.S.C. 211(a)(6). Thus, sake and similar products with an alcohol 
content of at least seven percent alcohol by volume are subject to the 
labeling and other requirements of the FAA Act.

TTB Jurisdiction Over These Products

    Beers (other than sak[eacute] and similar products) that do not 
conform to the definition of a ``malt beverage'' in the FAA Act are 
outside the scope of the FAA Act and, therefore, are not subject to the 
labeling, advertising, and other provisions of the TTB regulations 
promulgated under the FAA Act. This means, among other things, that 
brewers and importers of such products are not required to obtain a 
certificate of label approval for these beers.
    Brewery products that are not malt beverages under the FAA Act but 
that conform to the IRC definition of ``beer'' are still subject to all 
applicable requirements of the IRC and part 25 of the TTB regulations, 
including the labeling of bottles (Sec.  25.142) and the approval of 
formulas (27 CFR 25.55). Furthermore, all alcohol beverages containing 
not less than one-half of one percent alcohol by volume and intended 
for human consumption are subject to the Government health warning 
statement requirements of the Alcoholic Beverage Labeling Act of 1988 
(the ABLA, codified at 27 U.S.C. 213 through 219 and 219a) and the ABLA 
implementing regulations in part 16 of the TTB regulations (27 CFR part 
16).
    In cases where a brewery product (other than sak[eacute] and 
similar products) fails to meet the definition of a ``malt beverage'' 
under the FAA Act, the product will be subject to ingredient and other 
labeling requirements administered by the U.S. Food and Drug 
Administration (FDA). As reflected in the 1987 Memorandum of 
Understanding between FDA and TTB's predecessor agency, the Bureau of 
Alcohol, Tobacco and Firearms (ATF), TTB is responsible for the 
promulgation and enforcement of regulations with respect to the 
labeling of distilled spirits, wines, and malt beverages pursuant to 
the FAA Act. Importantly, however, in cases where an alcohol beverage 
is not covered by the labeling provisions of the FAA Act, the product 
is subject to ingredient and other labeling requirements under the 
Federal

[[Page 41261]]

Food, Drug, and Cosmetic Act, and the implementing regulations that are 
administered by FDA.

Required Quantities of Malted Barley and Hops to Qualify as a Malt 
Beverage Under the FAA Act

    TTB and its predecessor agency have previously provided guidance on 
the minimum quantities of malted barley and hops required to be used in 
the production of malt beverages. In 1994, the Bureau of Alcohol, 
Tobacco and Firearms (ATF) issued ATF Compliance Matters 94-1, which 
provided that beers fermented from at least 25 percent malted barley 
(calculated as the percentage of malt, by weight, compared to the total 
dry weight of all ingredients contributing fermentable extract to the 
base product) and made with at least 7\1/2\ pounds of hops (or the 
equivalent thereof in hop extracts or hop oils) per 100 barrels were 
``malt beverages'' under the FAA Act. Because neither the FAA Act nor 
the implementing regulations in 27 CFR part 7 prescribe minimum 
standards for the amount of malted barley used in the production of a 
malt beverage, we are now reconsidering this guidance.
    Pending a decision on whether to engage in rulemaking on this 
issue, TTB will continue to address inquiries from brewers regarding 
the classification of fermented beverages that contain hops and malted 
barley, but are made from less than 25 percent malted barley or less 
than 7\1/2\ pounds of hops per 100 barrels. For example, we recently 
determined that a neutral malt beer base containing a much lower amount 
of malted barley (one percent of the total dry weight of all 
ingredients contributing fermentable extract to the product) conformed 
to the definition of a ``malt beverage.''
    Brewers and importers should contact the Assistant Director, 
Advertising, Labeling and Formulation Division, if they have a question 
as to whether a particular product falls within the definition of a 
``malt beverage'' and therefore is subject to the certificate of label 
approval and other requirements under the FAA Act.

TTB Holding

    Held, in order for a brewery product to fall within the definition 
of a ``malt beverage'' under the FAA Act, it must be a fermented 
beverage made from both malted barley and hops, or their parts, or 
their products. A fermented beverage that qualifies as a ``beer'' under 
the IRC (other than sak[eacute] or similar products) but that is made 
without both malted barley and hops is not subject to the requirements 
of the FAA Act.

    Dated: July 7, 2008.
John J. Manfreda,
Administrator.

    Dated: July 14, 2008.
John J. Manfreda,
Administrator.
 [FR Doc. E8-16413 Filed 7-17-08; 8:45 am]
BILLING CODE 4810-31-P