Since 2010, under similar deals with alcohol and tobacco companies, the agency has forgiven more than $25.4 million; the total amount is unclear because some public documents do not list the size of the tax bill or penalty that is being reduced. Nine companies persuaded the agency to slash their bills by more than 95 percent, including Procter & Gamble's Olay subsidiary, which uses alcohol in its skin care products.
Tom Hogue, a spokesman for the bureau and former explosives inspector, says it only agrees to reduce companies' tax bills "if we are satisfied that the (remaining) penalty is commensurate with the violation and is sufficient to deter future illegal conduct." In cases where settlements are granted, Hogue says, "they allow us to use our resources to counter non-compliance, instead of tying them up in court."
When the alcohol and tobacco bureau was split from the Bureau of Alcohol, Tobacco and Firearms, it held on to the former agency's tax collection duties, including for firearms and ammunition. It's still the government's third-biggest revenue collector, after the IRS and Customs and Border Protection. It took in $23.5 billion in federal taxes on alcohol, tobacco, weapons and ammo in the fiscal year ended Sept. 30, 2011, the most recent data available. That amounts to $468 for every dollar the agency spent collecting taxes — more than twice the IRS' ratio, officials note.
The bureau also works with government trade officials to protect and expand international markets for American alcohol and tobacco. Its expertise is crucial in negotiating with Europeans about wine labeling, or standing up to countries that refuse to recognize American "straight bourbon" for what the government says it is: corn whiskey stored in charred new oak containers for at least two years.
In this role, the agency has come to the rescue over the years of whiskey lovers in China, Colombia and Brazil. Those countries' governments tried to ban booze containing too much fusel alcohol, the pungent byproduct of fermentation that gives some whiskey its spicy, solvent-like aroma. Working through international trade groups, armed with data from TTB scientists, U.S. officials spent years convincing them to reverse their policies and allow the importation of whiskey that meets American standards. That was a win for American alcohol producers.
Sometimes, to protect U.S. producers, the bureau erects trade barriers of its own. Under a proposal by the bureau last spring, anything labeled Pisco must have originated in Chile and Peru. (Pisco is a South American grape brandy whose signature cocktail, the Pisco Sour, is so celebrated that it has its own official Peruvian holiday.)
Aspiring Pisco producers in Bolivia, in the U.S. government's eyes, can take a hike.
This is no accident: It's the result of a trade agreement that compels Chile and Peru, in exchange for the Pisco rule, to make sure any bourbon sold there is from the U.S. and meets this country's standards.
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The U.S. is the only nation with an alcohol regulator based in its Treasury Department. Treasury was the federal government's monitor of products seen as sinful or illicit even before Prohibition began in 1919.
When the government first tried to crack down on cocaine and heroin in 1914, it did so by enacting steep taxes. For a time, marijuana also was controlled by imposing taxes so high, it was hoped, that people might lose interest.
After Prohibition was repealed in 1933, the government tried to keep a handle on the alcohol industry by writing production standards for alcohol directly into the tax code. That's where wine's alcohol content is limited to 24 percent.
The government uses taxes to control social phenomena, explains Bill Foster, who ran the bureau's headquarters before retiring this summer.
"Tobacco and alcohol are two of those commodities," Foster says.
The taxes are collected directly from producers and manufacturers, which pass those costs along to consumers. Liquor producers generally pay a flat rate of $13.50 per proof gallon — a gallon of liquid that is one-half alcohol by volume. Small cigars and cigarettes are taxed at a rate of $50.33 per 1,000 sticks.
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