Oregon Rectifier Sentenced to Federal Prison for Tax Fraud

Among distilled spirits producers and enthusiasts, the Alcohol Tax and Trade Bureau of the United States Treasury (TTB) is best known as the Federal agency that enforces the Standards of Identity for Distilled Spirits by reviewing and approving alcoholic beverage labels, but their primary job is collecting taxes. We don't often hear about producers being busted and prosecuted for tax offenses, but with the recent explosion of new licenses and new producers, we may hear about it more often.

Yesterday, Chief U.S. District Court Judge Ann Aiken sentenced William Myers, 66, of Cottage Grove, Oregon, to serve one year and one day in prison for failing to pay $879,000 in federal excise taxes and for filing more than 70 false federal excise tax returns on behalf of his company, the Side Pocket Food Company.

Upon release from prison, Myers must serve three years of supervised release, including 100 hours of community service in each of the three years, and he must pay restitution in the amount of $873,186.88. Pursuant to a plea agreement, Myers admitted that he owes more than $879,000 in federal excise taxes and filed more than 70 false excise tax returns.

Myers was also operating an illegal still inside the company warehouse. He was reportedly distilling wine into brandy on behalf of local wineries. Agents discovered the still while serving a search warrent. When tested, the distilled alcohol had dangerous levels of lead and copper. The Food and Drug Administration said that drinking the tainted alcohol could cause nausea, abdominal pain, and vomiting.

Myers runs Side Pocket with his wife and five of their six children. His lawyers argued that Myers was merely trying to save the company on which his family's livelihood depends, after it experienced setbacks during the financial crises of 2007-2008. Assistant U.S. Attorney Scott Bradford, who prosecuted the case, argued for a two-year sentence, saying it was important to send a message that cheating customers and taxpayers is not the way to salvage a struggling business.

Bradford's boss, U.S. Attorney S. Amanda Marshall, noted that, “Defendant cheated his clients, the taxpayers, and the regulatory system, acting as if the rules did not apply to him or his business. Business owners need to understand that this type of conduct will not be tolerated. There are legitimate ways, like bankruptcy, to work through difficult financial times. Theft and tax fraud puts individuals and communities at risk, it is illegal, and will land you in jail.”

Licensed as a rectifier (processor), warehouseman and bottler, but not a distiller, Side Pocket bought distilled spirts, which it used to create a line of products that included whiskey, vodka, rum, tequila, gin, and pre-mixed cocktails.

Cottage Grove is a small town located about 20 miles south of Eugene.

UPDATE 1/31/13: Christopher Null at Drinkhacker alerted me to this angle. Two days before the story above broke, it was reported that Side Pocket is being sued for failure to deliver on a private label vodka named for the Ying Yang Twins, a music group. It looks like the Myers family's troubles are just beginning.