Q1. Does the aging period interest capitalization exemption apply to all designated property?
A1. No, the aging period interest capitalization exemption is only for beer, wine or distilled spirits, except spirits unfit for beverage purposes.
Q2. When does the aging period interest capitalization exemption for beer, wine and distilled spirits start?
A2. The interest capitalization exemption for beer, wine and distilled spirits applies to interest costs paid or accrued in calendar years beginning after December 31, 2017.
Q3. How long does the aging period interest capitalization exemption for beer, wine and distilled spirits last?
A3. The aging period interest capitalization exemption for beer, wine and distilled spirits shall apply to interest costs paid or accrued through December 31, 2020.
Q4. When does the exemption start and stop for taxpayers with fiscal year-ends?
A4. The aging period interest capitalization exemption applies to interest paid or accrued starting January 1, 2018 and ending December 31, 2019.
Q5. The production period for beer, wine and distilled spirits will not include the aging period. What is a production period?
A5. The production period is the time periodin which production activity occurs. The production period begins on the first date the taxpayer's accumulated production expenditures, including planning and design expenditures, are at least 5 percent of the taxpayer's total estimated accumulated production expenditures for the property unit. Thus, the beginning of the production period may begin before the start of physical production activity. For example, preplanning for the beer, wine and spirits industry may include, planning for ingredients, production space or production personnel. For a property unit produced for sale, the production period ends when the unit is ready for sale and all reasonably expected production activities are completed.
Q6. Are all production activities for beer, wine and distilled spirits excluded from calculation of the production period for purposes of the interest capitalization rules?
A6. No, only the aging period is excluded from the production period for the purposes of the interest capitalization rules.
Q7. What is the Aging Period?
A7. According to the Alcohol and Tobacco Tax and Trade Bureau’s Beverage Alcohol Manual (BAM), aging is the period, after distillation and before bottling, when distilled spirits are stored in oak containers. For wine, the aging period occurs between fermentation and bottling, typically in barrels. The aging process for wine varies based on the type of wine. If aging for wine occurs after bottling, but before it’s held for sale, then the aging period also includes the period the wine is aged in the bottle. (See TAM9327007) For beer, the aging period occurs between the fermentation period and bottling (or other types of packaging, such as kegs). The aging period for beer can vary based on the type of yeast and the strength of the beer.
Q8. Is the change from capitalizing interest during the aging period to not capitalizing interest a change in method of accounting and do I have to file a Form 3115?
A8. Yes, a change from capitalizing interest to not capitalizing interest during the aging process is a change in accounting method.
Rev. Proc. 2015-13 has procedures for obtaining the commissioner’s consent to change an accounting method. A taxpayer should file Form 3115 under the nonautomatic method change procedures to obtain consent to change from capitalizing interest to not capitalizing interest during the aging process.
These FAQs are not included in the Internal Revenue Bulletin, and therefore may not be relied upon as legal authority. This means that the information cannot be used to support a legal argument in a court case.