Canadian Cannabis Businesses Getting Their Share Of Canada’s COVID-19 Stimulus Package

/0 Comments/in , , , /by

Canadian Cannabis Businesses Getting Their Share Of Canada’s COVID-19 Stimulus Package

Any chance the U.S. Government will follow suit and treat cannabis businesses fairly?

Export Development Canada (EDC) together with the Business Development Bank of Canada (BDC) and private sector lenders are working together to help Canadian entrepreneurs expanded under Canada’s $65-billion federal Business Credit Availability Program (BCAP). This program allows EDC to offer Canadian businesses of all sizes the credit they need during the COVID-19 pandemic. As cannabis is legal in Canada, cannabis businesses in Canada are benefiting from this program.

U.S. Cannabis Businesses Kept Out Of The U.S. COVID-19 Stimulus Package

On March 27, 2020 President Trump signed the $2 trillion Stimulus Bill formally known as the Coronavirus Aid, Relief and Economic Security [CARES] Act (the “CARES Act”) to provide assistance to workplaces and employees. The CARES Act provides many benefits intended to deliver cash into the hands of individuals and businesses, as well as many other tax provisions … but if you are in the cannabis business, you need to look elsewhere for relief.

CARES Act Relief For Businesses

The CARES Act offers the following two major “stimulus” provisions for businesses: the Employee Retention Credit and the Paycheck Protection Program.

Employee Retention Credit

Eligible employers are allowed a credit against employment taxes for each calendar quarter equal to 50% of qualified wage (including health benefits) paid to employees.  This amount is limited to $10,000 of wages paid to an employee for all calendar quarters.

An eligible employer is one which is in a trade or business:

  1. Whose operation is fully or partially suspended due to orders from an appropriate governmental authority limiting commerce, travel or group meetings due to COVID-19; or
  2. Who has a “significant decline” in gross receipts (i.e., there is a decrease to less than 50% of the gross receipts for the same quarter in the prior year).

Different rules apply as to the covered wages depending upon the number of employees the employer had in 2019. Tax exempt entities are also able to take advantage of this credit.  However, this credit is not available to employers receiving a Small Business Interruption Loan under section 1102 of the Act or if a Work Opportunity Tax Credit is allowed for the employee.

Unfortunately, this credit is not be available for state-licensed cannabis businesses as cannabis is a Schedule I controlled substance under Federal law.

Paycheck Protection Program (“PPP”)

Under this program, small businesses with 500 or fewer employees including not-for-profits, veterans’ organizations, tribal concerns, self-employed individuals, sole proprietorships, and independent contractors are eligible for loans to pay up to eight weeks of payroll costs including benefits as well as other costs.

PPP funds can be used to pay payroll costs including benefits (with salaries being under $100,000 per employee), interest on mortgages, rent payments, and utility bills; however, no more than 25% of the funds can be used for non-payroll costs.

The loan of the PPP funds will be forgiven if you maintain your pre-existing employees at their pre-existing salary levels.  Also, that you do not pay out more than 25% of the PPP funds for non-payroll costs specifically limited to: interest on mortgages, rent, and utilities.

The application can be found here on the United States Treasury website, along with details for borrowers and lenders.  After completing the application you would then go to any existing SBA lender or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating. Other regulated lenders will be available to make these loans once they are approved and enrolled in the program. You should consult with your local lender as to whether it is participating. Visit www.sba.gov for a list of Small Business Administration (SBA) lenders.

Unfortunately, the SBA is prohibited from administering any loans to cannabis businesses as cannabis is a Schedule I controlled substance under Federal law.

U.S. Senators Urging Change

A coalition of U.S. Senators are urging leadership to permit licensed cannabis operators to qualify for loans and other forms economic assistance available from the SBA.  In a March 26, 2020 letter addressed to the Chairman and Vice-Chair of the Senate Committee on Appropriations, the senators urge “the Subcommittee on Financial Services and General Government to include language in … forthcoming legislation to help extend SBA loan programs to legal cannabis businesses.”

Senators Michael Bennett (), Cory Booker (D-NJ), Tammy Duckworth (D-IL), Kirsten Gillibrand (D-NY), Kamala Harris (D-CA), Edward Markey (D-MA), Robert Menendez (D-NJ), Jeffrey Merkley (D-OR), Jacky Rosen (D-NV), Bernie Sanders (D-VT) and Ron Wyden (D-OR) signed on to the letter.

But until Federal law changes, the cannabis industry will still have to bear the followings risks and challenges:

Higher Taxes Still Remain

It still remains to be seen when favorable changes will be made to the Internal Revenue Code which treats businesses in the marijuana industry differently resulting in such business paying at least 3-times as much in taxes as ordinary businesses.

Generally, businesses can deduct ordinary and necessary business expenses under I.R.C. §162. This includes wages, rent, supplies, etc. However, in 1982 Congress added I.R.C. §280E. Under §280E, taxpayers cannot deduct any amount for a trade or business where the trade or business consists of trafficking in controlled substances…which is prohibited by Federal law. Marijuana, including medical marijuana, is a controlled substance. What this means is that dispensaries and other businesses trafficking in marijuana have to report all of their income and cannot deduct rent, wages, and other expenses, making their marginal tax rate substantially higher than most other businesses.

Reporting Of Cash Payments Still Remain

The Bank Secrecy Act of 1970 (“BSA”) requires financial institutions in the United States to assist U.S. government agencies to detect and prevent money laundering. Specifically, the act requires financial institutions to keep records of cash purchases of negotiable instruments, and file reports of cash purchases of these negotiable instruments of more than $10,000 (daily aggregate amount), and to report suspicious activity that might signify money laundering, tax evasion, or other criminal activities. The BSA requires any business receiving one or more related cash payments totaling more than $10,000 to file

IRS Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business.

The minimum penalty for failing to file EACH Form 8300 is $25,000 if the failure is due to an intentional or willful disregard of the cash reporting requirements. Penalties may also be imposed for causing, or attempting to cause, a trade or business to fail to file a required report; for causing, or attempting to cause, a trade or business to file a required report containing a material omission or misstatement of fact; or for structuring, or attempting to structure, transactions to avoid the reporting requirements. These violations may also be subject to criminal prosecution which, upon conviction, may result in imprisonment of up to 5 years or fines of up to $250,000 for individuals and $500,000 for corporations or both.

Marijuana-related businesses operate in an environment of cash transactions as many banks remain reluctant to do business with many in the marijuana industry. Like any cash-based business the IRS scrutinizes the amount of gross receipts to report and it is harder to prove to the IRS expenses paid in cash. So it is of most importance that the proper facilities and procedures be set up to maintain an adequate system of books and records.

How Do You Know Which Cannabis Tax Attorney Is Best For You?

Given that cannabis is still illegal under existing Federal law you need to protect yourself and your marijuana business from all challenges created by the U.S. government.  While cannabis is legal in California, that is not enough to protect you.  It’s coming down that the biggest risk is TAXES.  Be proactive and engage an experienced Cannabis Tax Attorney in your area. Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County, the Inland Empire (including Ontario and Palm Springs) and other California locations protect you and maximize your net profits. And if you are involved in crypto currency, check out what a Bitcoin Tax Attorney can do for you.

 

Update To State Of California COVID-19 Tax Relief

/0 Comments/in , , , , /by

Update To State Of California COVID-19 Tax Relief

FTB Coronavirus Tax Relief

The California Franchise Tax Board (“FTB”) has established a special section focused on steps to help taxpayers, businesses and others affected by the coronavirus and as information becomes available, the FTB will be updating this special page on its website.

In line with Governor Newsom’s March 12 Executive Order, FTB initially extended the due dates for State Of California filing and payment for affected taxpayers until June 15, 2020, with the qualification that the deadlines may be extended further if the IRS grants a longer relief period.  As the IRS extended filing and payment deadlines to July 15, 2020, the FTB is following the same treatment.

Extension Of Filing And Payment Deadlines

FTB is postponing until July 15, 2020 the filing and payment deadlines for all individuals and business entities for:

  • 2019 tax returns
  • 2019 tax return payments
  • 2020 1st and 2nd quarter estimate payments
  • 2020 LLC taxes and fees
  • 2020 Non-wage withholding payments

“The COVID-19 pandemic is disrupting life for people and businesses statewide,” said State Controller Betty T. Yee, who serves as chair of FTB. “We are further extending tax filing deadlines for all Californians to July 15. Hopefully, this small measure of relief will help allow people to focus on their health and safety during these challenging times.”

To give taxpayers a deadline consistent with that of the IRS without the federal dollar limitations, FTB is following the federal relief described in Notice 2020-17

Since California conforms to the underlying code sections that grant tax postponements for emergencies, FTB is extending the relief to all California taxpayers. Taxpayers do not need to claim any special treatment or call FTB to qualify for this relief.

But if you are due a refund you should file as soon as possible.

Extension Of Deadlines For Filing Tax Protests, Appeals, and Refund Claims

FTB is postponing until July 15, 2020 the pending filing deadlines for:

  • Claims for refunds with FTB
  • Protests of proposed tax assessments with FTB
  • Appeals to the Office of Tax Appeals of Notices of Action denying claims for refund or affirming tax assessments

Furthermore, the FTB has until July 15, 2020, to issue a proposed tax assessment for years where the statute of limitations expires during the March 12 to July 15, 2020, postponement period.

New Guidance Issued By FTB

On March 27, 2020 President Trump signed the $2 trillion Stimulus Bill formally known as the Coronavirus Aid, Relief and Economic Security [CARES] Act (the “CARES Act”) to provide assistance to workplaces and employees. The CARES Act provides many benefits intended to deliver cash into the hands of individuals and businesses, as well as many other tax provisions.  On April 8, 2020 the FTB issued guidance to clarify what Federal tax provisions of the CARES Act will carry over to California State taxes.

Are the payments that individuals receive from the federal government (i.e., $1,200 [$2,400 for individuals filing a joint return] and $500 per qualifying child) under CARES Act subject to California income tax?

No, these payments are not subject to California income tax.

Is the emergency increase in unemployment compensation benefits (in the amount of $600 per week) that individuals receive under the CARES Act subject to California income tax?

No, these payments are not subject to California income tax.

Are the modifications for net operating losses (NOLs) in the CARES Act applicable for California income and franchise tax purposes?

No, these modifications for NOLs do not apply for California income and franchise tax purposes.

Does California conform to the federal early withdrawal penalty waivers for distributions from qualified retirement accounts under the CARES Act?

Yes, the federal early withdrawal penalty waivers for distributions from qualified retirement accounts under the federal CARES Act also applies for California income tax purposes.

An Opportunity For Taxpayers Who Owe The FTB

Do not think that if you owe the FTB your tax problem will disappear because of the measures being considered by the government. Instead you should be utilizing this valuable time to get yourself prepared so that when activity in this State regains momentum, you are ready to make the best offer or proposal to take control of your outstanding tax debts.

As a prerequisite to any proposal to the FTB, you must be in current compliance. That means if you have any outstanding income tax returns, they must be completed and submitted to FTB.

Also, if you are required to make estimated tax payments, you must be current in making those payments. Fortunately, as we are now in 2020, taxpayers who expect to owe for 2019 should have their 2019 income tax returns done now so that the 2019 liability can be rolled over into any proposal and the requirement to make estimated tax payments will now start for 2020.

Remember that COVID-19 does not alter the tax laws, so all taxpayers should continue to meet their tax obligations as normal. Individuals and businesses should keep filing their tax returns and making payments and deposits with the FTB, as they are required to do.

The take away from this – use the California government’s downtime to your advantage to prepare for the future.

Click here for COVID-19 Tax Relief measures instituted by the IRS in “The IRS People First Initiative” that can benefit you.

What Should You Do?

You know that at the Law Offices Of Jeffrey B. Kahn, P.C. we are always thinking of ways that our clients can save on taxes. Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), San Diego County (Carlsbad) and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income. Also if you are involved in cannabis, check out what a cannabis tax attorney can do for you.  And if you are involved in crypto currency, check out what a bitcoin tax attorney can do for you.

Treasury Inspector General Targets The Cannabis Industry Recommending Increased Tax Compliance Action

/0 Comments/in , /by

Treasury Inspector General Targets The Cannabis Industry Recommending Increased Tax Compliance Action

On March 30, 2020, the Treasury Inspector General For Tax Administration (TIGTA) released a report to the IRS pointing them toward targeting the state-licensed cannabis industry for lost tax revenue.

Highlights Of The Treasury Inspector General Report 

Cannabis is classified as a Schedule I controlled substance under the Controlled Substances Act.  Businesses in this industry have limited banking access and are subject to IRC §280E, which prohibits the deduction of expenses incurred in trafficking Schedule I controlled substances.  The IRS risks diminished taxpayer compliance when cannabis businesses fail to report all income as required under IRC §61, regardless of source, and deduct expenses not allowed under IRC §280E.

TIGTA reviewed statistical random samples of cannabis businesses in three States and determined that 59% (140 out of 237) of the tax return filings for Tax Year 2016 had likely IRC §280E adjustments, which when projected over the population totaled $48.5 million in unassessed taxes for Tax Year 2016 or $242.6 million when the results are forecasted over five years.

TIGTA also estimated the tax impact to comply with IRC §280E for the same sampled cannabis business taxpayers.  When projected to the population, TIGTA estimated a $95 million Federal income tax impact to these taxpayers from the application of IRC §280E on their Tax Year 2016, or $475.1 million when forecasted over five years.

In addition, TIGTA selected a statistically random sample of 90 cannabis businesses that filed State returns for Tax Year 2016 in the State of Washington to determine whether these taxpayers were reporting all of their income in compliance with IRC §61.  TIGTA found that 26% (23 of 90) returns likely have I.R.C. § 61 adjustments involving either underreported income or nonfiling of tax returns.  When projected over the population for Washington, the IRS missed the opportunity to address $3.9 million of potential assessments for Tax Year 2016, or $19.3 million when forecasted over five years.

Also, the TIGTA stated that the IRS lacks guidance to taxpayers and tax professionals in the cannabis industry.  Such guidance would improve awareness of tax filing requirements for taxpayers in this industry, such as the correct application of IRC §§280E and 471(c), which would reduce the burden of tracking inventory for certain small businesses.

Recommendations Of The Treasury Inspector General Report

TIGTA recommended the following to the IRS:

  1. The IRS develop a comprehensive compliance approach for the cannabis industry, including a method to identify businesses in this industry and track examination results;
  2. The IRS develop and publicize guidance specific to the cannabis industry, such as guidance on the application of IRC § 471(c) in conjunction with IRC § 280E;
  3. Leverage publically available information at the State level and expand the use of existing Fed/State agreements to identify nonfilers and unreported income in the cannabis industry;
  4. Increase educational outreach towards unbanked taxpayers making cash deposits regarding the unbanked relief policies available.

The IRS did not agree with recommendation #2 above to develop and provide guidance on IRC § 471(c) citing other priorities.

But until Federal law changes, the cannabis industry will still have to bear the followings risks and challenges:

Higher Taxes Still Remain

It still remains to be seen when favorable changes will be made to the Internal Revenue Code which treats businesses in the marijuana industry differently resulting in such business paying at least 3-times as much in taxes as ordinary businesses.

Generally, businesses can deduct ordinary and necessary business expenses under I.R.C. §162. This includes wages, rent, supplies, etc. However, in 1982 Congress added I.R.C. §280E. Under §280E, taxpayers cannot deduct any amount for a trade or business where the trade or business consists of trafficking in controlled substances…which is prohibited by Federal law. Marijuana, including medical marijuana, is a controlled substance. What this means is that dispensaries and other businesses trafficking in marijuana have to report all of their income and cannot deduct rent, wages, and other expenses, making their marginal tax rate substantially higher than most other businesses.

Reporting Of Cash Payments Still Remain

The Bank Secrecy Act of 1970 (“BSA”) requires financial institutions in the United States to assist U.S. government agencies to detect and prevent money laundering. Specifically, the act requires financial institutions to keep records of cash purchases of negotiable instruments, and file reports of cash purchases of these negotiable instruments of more than $10,000 (daily aggregate amount), and to report suspicious activity that might signify money laundering, tax evasion, or other criminal activities. The BSA requires any business receiving one or more related cash payments totaling more than $10,000 to file

IRS Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business.

The minimum penalty for failing to file EACH Form 8300 is $25,000 if the failure is due to an intentional or willful disregard of the cash reporting requirements. Penalties may also be imposed for causing, or attempting to cause, a trade or business to fail to file a required report; for causing, or attempting to cause, a trade or business to file a required report containing a material omission or misstatement of fact; or for structuring, or attempting to structure, transactions to avoid the reporting requirements. These violations may also be subject to criminal prosecution which, upon conviction, may result in imprisonment of up to 5 years or fines of up to $250,000 for individuals and $500,000 for corporations or both.

Marijuana-related businesses operate in an environment of cash transactions as many banks remain reluctant to do business with many in the marijuana industry. Like any cash-based business the IRS scrutinizes the amount of gross receipts to report and it is harder to prove to the IRS expenses paid in cash. So it is of most importance that the proper facilities and procedures be set up to maintain an adequate system of books and records.

IRS Is Ready And Motivated To Examine Cannabis Businesses

The TIGTA report shows there is a substantial revenue generating opportunity for the IRS to conduct audits of cannabis businesses.  You can expect that the IRS will train their revenue agents in the methods used to properly audit cannabis businesses and identify non-filers.  Using publicly available information such as State license registrations, social media and listing services (such as Weedmaps), the IRS should be able to identify non-filers or those taxpayers who filed tax returns concealing that there are in the cannabis business.

How Do You Know Which Cannabis Tax Attorney Is Best For You?

Given that cannabis is still illegal under existing Federal law you need to protect yourself and your marijuana business from all challenges created by the U.S. government.  While cannabis is legal in California, that is not enough to protect you.  It’s coming down that the biggest risk is TAXES.  Be proactive and engage an experienced Cannabis Tax Attorney in your area. Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County, Northern California (including Sacramento and the San Francisco Bay Area) and other California locations protect you and maximize your net profits. And if you are involved in crypto currency, check out what a Bitcoin Tax Attorney can do for you.

Cannabis Businesses Kept Out Of COVID-19 Stimulus Package

/0 Comments/in , , /by

Cannabis Businesses Kept Out Of COVID-19 Stimulus Package

On March 27, 2020 President Trump signed the $2 trillion Stimulus Bill formally known as the Coronavirus Aid, Relief and Economic Security [CARES] Act (the “CARES Act”) to provide assistance to workplaces and employees. The CARES Act provides many benefits intended to deliver cash into the hands of individuals and businesses, as well as many other tax provisions … but if you are in the cannabis business, you need to look elsewhere for relief.

CARES Act Relief For Businesses

 The CARES Act offers the following two major “stimulus” provisions for businesses: the Employee Retention Credit and the Paycheck Protection Program.

Employee Retention Credit

Eligible employers are allowed a credit against employment taxes for each calendar quarter equal to 50% of qualified wage (including health benefits) paid to employees.  This amount is limited to $10,000 of wages paid to an employee for all calendar quarters.

An eligible employer is one which is in a trade or business:

  1. Whose operation is fully or partially suspended due to orders from an appropriate governmental authority limiting commerce, travel or group meetings due to COVID-19; or
  2. Who has a “significant decline” in gross receipts (i.e., there is a decrease to less than 50% of the gross receipts for the same quarter in the prior year).

Different rules apply as to the covered wages depending upon the number of employees the employer had in 2019. Tax exempt entities are also able to take advantage of this credit.  However, this credit is not available to employers receiving a Small Business Interruption Loan under section 1102 of the Act or if a Work Opportunity Tax Credit is allowed for the employee.

Unfortunately, this credit is not be available for state-licensed cannabis businesses as cannabis is a Schedule I controlled substance under Federal law.

Paycheck Protection Program (“PPP”)

Under this program, small businesses with 500 or fewer employees including not-for-profits, veterans’ organizations, tribal concerns, self-employed individuals, sole proprietorships, and independent contractors are eligible for loans to pay up to eight weeks of payroll costs including benefits as well as other costs.

PPP funds can be used to pay payroll costs including benefits (with salaries being under $100,000 per employee), interest on mortgages, rent payments, and utility bills; however, no more than 25% of the funds can be used for non-payroll costs.

The loan of the PPP funds will be forgiven if you maintain your pre-existing employees at their pre-existing salary levels.  Also, that you do not pay out more than 25% of the PPP funds for non-payroll costs specifically limited to: interest on mortgages, rent, and utilities.

The application can be found here on the United States Treasury website, along with details for borrowers and lenders.  After completing the application you would then go to any existing SBA lender or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating. Other regulated lenders will be available to make these loans once they are approved and enrolled in the program. You should consult with your local lender as to whether it is participating. Visit www.sba.gov for a list of Small Business Administration (SBA) lenders.

Unfortunately, the SBA is prohibited from administering any loans to cannabis businesses as cannabis is a Schedule I controlled substance under Federal law.

U.S. Senators Urging Change

A coalition of U.S. Senators are urging leadership to permit licensed cannabis operators to qualify for loans and other forms economic assistance available from the SBA.  In a March 26, 2020 letter addressed to the Chairman and Vice-Chair of the Senate Committee on Appropriations, the senators urge “the Subcommittee on Financial Services and General Government to include language in … forthcoming legislation to help extend SBA loan programs to legal cannabis businesses.”

Senators Michael Bennett (), Cory Booker (D-NJ), Tammy Duckworth (D-IL), Kirsten Gillibrand (D-NY), Kamala Harris (D-CA), Edward Markey (D-MA), Robert Menendez (D-NJ), Jeffrey Merkley (D-OR), Jacky Rosen (D-NV), Bernie Sanders (D-VT) and Ron Wyden (D-OR) signed on to the letter.

But until Federal law changes, the cannabis industry will still have to bear the followings risks and challenges:

Higher Taxes Still Remain

It still remains to be seen when favorable changes will be made to the Internal Revenue Code which treats businesses in the marijuana industry differently resulting in such business paying at least 3-times as much in taxes as ordinary businesses.

Generally, businesses can deduct ordinary and necessary business expenses under I.R.C. §162. This includes wages, rent, supplies, etc. However, in 1982 Congress added I.R.C. §280E. Under §280E, taxpayers cannot deduct any amount for a trade or business where the trade or business consists of trafficking in controlled substances…which is prohibited by Federal law. Marijuana, including medical marijuana, is a controlled substance. What this means is that dispensaries and other businesses trafficking in marijuana have to report all of their income and cannot deduct rent, wages, and other expenses, making their marginal tax rate substantially higher than most other businesses.

Reporting Of Cash Payments Still Remain

The Bank Secrecy Act of 1970 (“BSA”) requires financial institutions in the United States to assist U.S. government agencies to detect and prevent money laundering. Specifically, the act requires financial institutions to keep records of cash purchases of negotiable instruments, and file reports of cash purchases of these negotiable instruments of more than $10,000 (daily aggregate amount), and to report suspicious activity that might signify money laundering, tax evasion, or other criminal activities. The BSA requires any business receiving one or more related cash payments totaling more than $10,000 to file

IRS Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business.

The minimum penalty for failing to file EACH Form 8300 is $25,000 if the failure is due to an intentional or willful disregard of the cash reporting requirements. Penalties may also be imposed for causing, or attempting to cause, a trade or business to fail to file a required report; for causing, or attempting to cause, a trade or business to file a required report containing a material omission or misstatement of fact; or for structuring, or attempting to structure, transactions to avoid the reporting requirements. These violations may also be subject to criminal prosecution which, upon conviction, may result in imprisonment of up to 5 years or fines of up to $250,000 for individuals and $500,000 for corporations or both.

Marijuana-related businesses operate in an environment of cash transactions as many banks remain reluctant to do business with many in the marijuana industry. Like any cash-based business the IRS scrutinizes the amount of gross receipts to report and it is harder to prove to the IRS expenses paid in cash. So it is of most importance that the proper facilities and procedures be set up to maintain an adequate system of books and records.

How Do You Know Which Cannabis Tax Attorney Is Best For You?

Given that cannabis is still illegal under existing Federal law you need to protect yourself and your marijuana business from all challenges created by the U.S. government.  While cannabis is legal in California, that is not enough to protect you.  It’s coming down that the biggest risk is TAXES.  Be proactive and engage an experienced Cannabis Tax Attorney in your area. Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County, Metropolitan Los Angeles (including Long Beach and Ontario) and other California locations protect you and maximize your net profits. And if you are involved in crypto currency, check out what a Bitcoin Tax Attorney can do for you.

Letter

Coronavirus Aid, Relief and Economic Security Act – Part 2: Businesses

/0 Comments/in , , , /by

Coronavirus Aid, Relief and Economic Security Act – Part 2: Businesses

On March 27, 2020 President Trump signed the $2 trillion Stimulus Bill formally known as the Coronavirus Aid, Relief and Economic Security [CARES] Act (the “CARES Act”) to provide assistance to workplaces and employees. The CARES Act provides many benefits intended to deliver cash into the hands of individuals and businesses, as well as many other tax provisions.

In this blog we will highlight the major provisions applying to businesses.  Click here for our blog on provisions for individuals.

Employee Retention Credit

Eligible employers are allowed a credit against employment taxes for each calendar quarter equal to 50% of qualified wage (including health benefits) paid to employees.  This amount is limited to $10,000 of wages paid to an employee for all calendar quarters.

An eligible employer is one which is in a trade or business:

  1. Whose operation is fully or partially suspended due to orders from an appropriate governmental authority limiting commerce, travel or group meetings due to COVID-19; or
  2. Who has a “significant decline” in gross receipts (i.e., there is a decrease to less than 50% of the gross receipts for the same quarter in the prior year).

Different rules apply as to the covered wages depending upon the number of employees the employer had in 2019. Tax exempt entities are also able to take advantage of this credit.  However, this credit is not available to employers receiving a Small Business Interruption Loan under section 1102 of the Act or if a Work Opportunity Tax Credit is allowed for the employee.  Additionally, this credit may not be available for state-licensed cannabis businesses as cannabis is a Class I controlled substance under Federal law.

Payroll Tax Holiday

There is a deferral of the employer’s share of payroll taxes for the period beginning on March 27, 2020 to January 1, 2021 pursuant to an SBA loan 7A or under Act section 1109.

Business Interest Expense Limit Increased

The TCJA generally provided that net business interest is deductible only to the extent of 30% of Adjusted Taxable Income.  The CARES Act increases this limit to 50% for 2019 and 2020. Additionally, since the current economic problems cause by COVID-19 are expected to produce lower income in 2020 than in 2019, the CARES Act provides that a taxpayer can elect to use the 2019 Adjusted Taxable Income in place of 2020.

Incentive For 2020 Charitable Contributions

Be aware of new provisions encouraging charitable contributions:

  • The limit on deductible charitable contributions by a C corporation (normally 10% of Taxable Income) is increased to 25%.
  • Additionally, for a business making a contribution of food inventory, the limitation is increased from 15% to 25%.

The following provisions have retroactive effect that business may be able to claim refunds of previously paid taxes by filing amended tax returns for 2018:

Suspension Of Restrictions On The Use Of Net Operating Losses

Under the 2017 Tax Cuts And Jobs Act (TCJA), net operating losses were no longer eligible to be carried back, and their usage, when carried forward, was limited to 80% of taxable income. Under the CARES Act, net operating losses created in the 2018, 2019 and 2020 tax years can be carried back five years with no limitation on their usage.

Suspension Of Prior Business Loss Limitations

Under the TCJA, taxpayers (other than C corporations) were limited in utilizing net business losses (i.e., business losses in excess of business income). These taxpayers were limited to using only $250,000 ($500,000 on a married joint return) of net business losses against non-business income. The CARES Act suspends this rule so that net business losses for 2018, 2019 and 2020 can be used without limit.

Immediate Refund Of Corporate AMT Credit

The TCJA provided that the alternative minimum tax no longer applied to C corporations.  Those corporations with AMT credits were given the ability to recover these amounts as tax reductions and refunds over a four-year period (2018 to 2021.) The CARES Act cuts this refund period in half (2018 to 2019) and corporations can make an election to recover the AMT credit entirely in 2018.

Reformation Of Bonus Depreciation for Qualified Improvement Property (QIP)

The CARES Act cures a legislative error under the TCJA and provides that the costs for Qualified Improvement Property are eligible for bonus depreciation. This provision is retroactive for 2018 QIP costs.

Click here for COVID-19 Tax Relief measures instituted by the IRS in “The IRS People First Initiative” that can benefit you.

What Should You Do?

You know that at the Law Offices Of Jeffrey B. Kahn, P.C. we are always thinking of ways that our clients can save on taxes and with these tax law changes it is possible that business can claim refunds now by filing an amended return.  If you are selected for an audit, stand up to the IRS by getting representation. Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), Los Angeles (including Long Beach and Ontario) and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income. Also if you are involved in cannabis, check out what a cannabis tax attorney can do for you.  And if you are involved in crypto currency, check out what a bitcoin tax attorney can do for you.

California Cannabis Businesses Coping With COVID-19

/0 Comments/in , , /by

State & local governments are taking unprecedented measures to stop dine-in restaurant service, close gyms and movie theaters, and ban or limit all gatherings to fight the spread of the coronavirus.  What remains open are those establishments that are considered to be “essential businesses”.

What Are “Essential Businesses”?

State & local governments designate as “essential businesses” those businesses or firms that perform an essential government function. While the list may vary between different jurisdictions, they typically include:

  • Healthcare operations, including home health workers.
  • Essential infrastructure, including construction of housing and operation of public transportation and utilities.
  • Grocery stores, farmers markets, food banks, convenience stores.
  • Businesses that provide necessities of life for economically disadvantaged individuals and shelter facilities.
  • Pharmacies, healthcare supply stores and healthcare facilities.
  • Gas stations and auto repair facilities.
  • Garbage collection.
  • Hardware stores, plumbers, electricians, pool service, landscape maintenance, exterminators and other service providers necessary to maintain the safety, sanitation and essential operation of residences and other essential businesses.
  • Educational institutions, for the purposes of facilitating distance learning.
  • Laundromats, dry cleaners and laundry service providers.
  • Businesses that ship or deliver groceries, food and goods directly to residences.
  • Businesses that supply products needed for people to work from home, including electronic stores, mobile phone stores and office supply stores.
  • Airlines, taxis and other transportation providers offering services needed for essential activities.
  • Home-based care for seniors, adults or children.
  • Childcare facilities providing services that enable essential employees to go to work.
  • Roles required for any essential business to “maintain basic operations,” which include security, payroll and similar activities.
  • Hotels, motels and lawfully permitted vacation rentals and homesharing.

Are Licensed Cannabis Businesses “Essential Businesses”?

On Thursday, March 19, 2020 Governor Gavin Newsom issued a stay at home order to protect the health and well-being of all Californians and to establish a consistent approach across the state to slow the spread of COVID-19. This order went into effect on Thursday, March 19, 2020, and is in place until further notice.  On March 21, 2020 the Bureau Of Cannabis Control (BCC) affirmed that this order identifies certain services as essential, including food, prescriptions, and healthcare. These services can continue despite the stay at home order. Because cannabis is an essential medicine for many residents, licensees may continue to operate at this time so long as their operations comply with local rules and regulations. The scope should also include the supply chain of growers, manufacturers, and distributors.  Any licensee that continues to operate must adopt social distancing and anti-congregating measures and must follow the CDC’s Interim Guidance for Businesses and Employers to Plan and Respond to Coronavirus Disease at all times.

Tax Relief For All Businesses And Individuals

President Donald Trump declared the coronavirus pandemic a national emergency. Therefore, under Sec. 7508A, the declaration of an emergency under the Robert T. Stafford Disaster Relief and Emergency Assistance Act, P.L. 100-707, the IRS is allowed to delay certain tax filing and payment deadlines.

The IRS has established a special section focused on steps to help taxpayers, businesses and others affected by the coronavirus and as information becomes available, the IRS will be updating this special page on its website.

On March 18, 2020 the Treasury Department and the IRS issued the first formal guidance.  The Treasury Department and IRS are extending the due date for Federal income tax payments due April 15, 2020, to July 15, 2020, for payments due of up to $10 million for corporations and up to $1 million for individuals – regardless of filing status – and other unincorporated entities. Associated interest, additions to tax, and penalties for late payment will also be suspended until July 15, 2020.

Click here for the press release issued by the Treasury Department.

Click here for Notice 2020-17 issued by the IRS.

This relief is available solely with respect to:

  • Federal income tax payments (including payments of tax on self-employment income) due on April 15, 2020, in respect of an affected taxpayer’s 2019 taxable year, and
  • Federal estimated income tax payments (including payments of tax on self-employment income) due on April 15, 2020, for an affected taxpayer’s 2020 taxable year.

This relief has since been expanded extending the filing deadline of tax returns from April 15th to July 15th.

As a result of the postponement of the due date for making Federal income tax payments up to the applicable postponed payment amount from April 15, 2020, to July 15, 2020, the period beginning on April 15, 2020, and ending on July 15, 2020, will be disregarded in the calculation of any interest, penalty, or addition to tax for failure to pay the Federal income taxes postponed by this relief. Interest, penalties, and additions to tax with respect to such postponed Federal income tax payments will begin to accrue on July 16, 2020. In addition, interest, penalties and additions to tax will accrue, without any suspension or deferral, on the amount of any Federal income tax payments in excess of the applicable postponed payment amount due but not paid by an affected taxpayer on April 15, 2020.

Remember that COVID-19 does not alter the tax laws, so all taxpayers should continue to meet their tax obligations as normal. Individuals and businesses should keep filing their tax returns and making payments and deposits with the IRS, as they are required to do.

The take away from this – use the Federal government’s downtime to your advantage to prepare for the future.

What Should You Do?

You know that at the Law Offices Of Jeffrey B. Kahn, P.C. we are always thinking of ways that our clients can save on taxes. If you are selected for an audit, stand up to the IRS by getting representation. Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. The cannabis tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), Los Angeles and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income. And if you are involved in crypto currency, check out what a bitcoin tax attorney can do for you.

 

How Are Cannabis Businesses Coping With COVID-19?

/0 Comments/in , , /by

State & local governments are taking unprecedented measures to stop dine-in restaurant service, close gyms and movie theaters, and ban or limit all gatherings to fight the spread of the coronavirus.  What remains open are those establishments that are considered to be “essential businesses”.

What Are “Essential Businesses”?

State & local governments designate as “essential businesses” those businesses or firms that perform an essential government function. While the list may vary between different jurisdictions, they typically include:

  • Healthcare operations, including home health workers.
  • Essential infrastructure, including construction of housing and operation of public transportation and utilities.
  • Grocery stores, farmers markets, food banks, convenience stores.
  • Businesses that provide necessities of life for economically disadvantaged individuals and shelter facilities.
  • Pharmacies, healthcare supply stores and healthcare facilities.
  • Gas stations and auto repair facilities.
  • Garbage collection.
  • Hardware stores, plumbers, electricians, pool service, landscape maintenance, exterminators and other service providers necessary to maintain the safety, sanitation and essential operation of residences and other essential businesses.
  • Educational institutions, for the purposes of facilitating distance learning.
  • Laundromats, dry cleaners and laundry service providers.
  • Businesses that ship or deliver groceries, food and goods directly to residences.
  • Businesses that supply products needed for people to work from home, including electronic stores, mobile phone stores and office supply stores.
  • Airlines, taxis and other transportation providers offering services needed for essential activities.
  • Home-based care for seniors, adults or children.
  • Childcare facilities providing services that enable essential employees to go to work.
  • Roles required for any essential business to “maintain basic operations,” which include security, payroll and similar activities.
  • Hotels, motels and lawfully permitted vacation rentals and homesharing.

Are Cannabis Businesses “Essential Businesses”?

Again you need to check with your local jurisdiction but in California it is highly likely that your local jurisdiction has ordered that cannabis businesses are essential businesses if in the case of licensed cannabis dispensaries and lounges, it is provided that cannabis products are picked up, or if licensed to do, for delivery, and the lounge areas of such establishments shall not be used.  The scope should also include the supply chain of growers, manufacturers, and distributors.

All licensed cannabis businesses in good standing are included as “Essential Businesses” and must follow the existing terms of any local Order as written. Such Order typically requires that they, like all other Essential Businesses, establish practices that includes 6-foot distances between individuals, frequent 20-second hand-washing or hand-sanitizing, cough and sneeze covering, regularly cleaning high-touch surfaces, and avoiding all social greetings involving contact (handshaking, etc.). These best practices plus the Bureau Of Cannabis Control (BCC) authorized curbside pickup and contact-less delivery are expected to protect customers and employees by reducing contact.

Tax Relief For All Businesses And Individuals

President Donald Trump declared the coronavirus pandemic a national emergency. Therefore, under Sec. 7508A, the declaration of an emergency under the Robert T. Stafford Disaster Relief and Emergency Assistance Act, P.L. 100-707, the IRS is allowed to delay certain tax filing and payment deadlines.

The IRS has established a special section focused on steps to help taxpayers, businesses and others affected by the coronavirus and as information becomes available, the IRS will be updating this special page on its website.

On March 18, 2020 the Treasury Department and the IRS issued the first formal guidance.  The Treasury Department and IRS are extending the due date for Federal income tax payments due April 15, 2020, to July 15, 2020, for payments due of up to $10 million for corporations and up to $1 million for individuals – regardless of filing status – and other unincorporated entities. Associated interest, additions to tax, and penalties for late payment will also be suspended until July 15, 2020.

Click here for the press release issued by the Treasury Department.

Click here for Notice 2020-17 issued by the IRS.

This relief is available solely with respect to:

  • Federal income tax payments (including payments of tax on self-employment income) due on April 15, 2020, in respect of an affected taxpayer’s 2019 taxable year, and
  • Federal estimated income tax payments (including payments of tax on self-employment income) due on April 15, 2020, for an affected taxpayer’s 2020 taxable year.

No extension is provided in this relief for the payment or deposit of any other type of Federal tax, or for the filing of any tax return or information return.

As a result of the postponement of the due date for making Federal income tax payments up to the applicable postponed payment amount from April 15, 2020, to July 15, 2020, the period beginning on April 15, 2020, and ending on July 15, 2020, will be disregarded in the calculation of any interest, penalty, or addition to tax for failure to pay the Federal income taxes postponed by this relief. Interest, penalties, and additions to tax with respect to such postponed Federal income tax payments will begin to accrue on July 16, 2020. In addition, interest, penalties and additions to tax will accrue, without any suspension or deferral, on the amount of any Federal income tax payments in excess of the applicable postponed payment amount due but not paid by an affected taxpayer on April 15, 2020.

Again, we emphasize that this relief to allow a delay of payment does not impact the April 15, 2020 filing deadline for your tax return.  If additional time to file is needed, you would need to apply for an automatic six-month extension using Form 4868 for individuals and Form 7004 for corporations.  It also does not impact the 2nd quarter 2020 individual estimated tax payment due June 15, 2020.

Remember that COVID-19 does not alter the tax laws, so all taxpayers should continue to meet their tax obligations as normal. Individuals and businesses should keep filing their tax returns and making payments and deposits with the IRS, as they are required to do.

The take away from this – use the Federal government’s downtime to your advantage to prepare for the future.

What Should You Do?

You know that at the Law Offices Of Jeffrey B. Kahn, P.C. we are always thinking of ways that our clients can save on taxes. If you are selected for an audit, stand up to the IRS by getting representation. Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. The cannabis tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), San Francisco Bay Area (including Walnut Creek and San Jose) and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income. And if you are involved in crypto currency, check out what a bitcoin tax attorney can do for you.

Weedmaps Under Pressure To Disclose Cannabis Businesses To The Feds

/0 Comments/in , , /by

Eastern District of California seeks documents on roughly 30 companies from cannabis-retail listing service Weedmaps, according to grand-jury subpoena.

According to a report from MarketWatch prosecutors in the U.S. attorney’s office for the Eastern District of California ordered the production of records from Ghost Management Group LLC, which owns a subsidiary called Weedmaps that provides an online directory of cannabis retailers. Weedmaps’ online services allow pot consumers to rate and compare stores, find deals and place orders for delivery.

The subpoena covers documents related to cannabis businesses listed on Weedmaps, and records related to its ordering service. Prosecutors also sought documents and other records kept by Weedmaps related to its own staff, investors and accounting, according to the subpoena issued late last year.

While Weedmaps does not sell cannabis but merely serves that industry by providing an advertising service, such action by the Department Of Justice (“DOJ”) to go after third parties providing ancillary services to the cannabis industry is very chilling.

Cannabis Is Illegal Under Federal Law.

It is enough that a cannabis businesses have to face the fact that under 21 U.S.C. § 812 (known as the Federal Controlled Substances Act), the Federal government classifies marijuana as a Schedule 1 substance with a high potential for abuse, no currently accepted medical use in treatment, and lack of accepted safety for use under medical supervision.

The federal penalties for possession of any amount of marijuana are as follows:

  • First Offense – Misdemeanor involving up to one year of incarceration and $1,000 in fines
  • Second Offense – Misdemeanor punishable by 15 days to 2 years behind bars and $2,500 in fines
  • Third and subsequent offenses – Misdemeanor or felony punishable by 90 days to 3 years of incarceration and fines of up to $5,000.

The penalties for the sale of marijuana depend on the amount of marijuana you have been accused of selling or attempting to sell:

  • Less than 50 kilograms – Felony punishable by up to 5 years in prison and/or up to $250,000 in fines
  • 50 to 99 kilograms – Felony punishable by up to 20 years in prison and/or fines of up to $1,000,000
  • 100 to 999 kilograms – Felony involving 5 to 40 years incarceration and/or fines of up to $2,000,000
  • 1000 kg and up – Felony carrying a sentence of 10 years to life in prison and/or up to $4,000,000 in fines

As for the cultivation of marijuana, the federal authorities punish it on the basis of the number of plants you were caught growing:

  • Less than 50 plants – Felony punishable by up to 5 years in prison and/or up to $250,000 in fines
  • 50 to 99 plants – Felony punishable by up to 20 years in prison and/or up to $1,000,000 in fines
  • 100 to 999 plants – Felony carrying a 5 to 40-year prison sentence and/or fines of up to $5,000,000
  • 1,000 plants or more – Felony involving 10 years to life in prison and/or fines of up to $10,000,000

With aggravating factors such as a trafficking activity that results in an injury or death, a sale within 1,000 feet of a school, or a case involving five grams sold to a minor, the above penalties may increase dramatically but the fact that a cannabis business is properly licensed by the State can be a mitigating factor decreasing these penalties.

Risk To Being Shut Down And Assets Seized By Your Local Federal District Attorney

On January 4, 2018 former Attorney General Jeff Sessions rescinded what was known as the “Cole Memo”.

The Cole Memo which came out of the DOJ under the Obama administration in 2013, directed U.S. Attorneys to use discretion to prioritize certain types of violations in prosecuting cannabis operators, but, strictly speaking, it did not make operations in cannabis legal.

The Cole Memo included eight factors for prosecutors to look at in deciding whether to charge a medical marijuana business with violating the Federal law:

  • Does the business allow minors to gain access to marijuana?
  • Is revenue from the business funding criminal activities or gangs?
  • Is the marijuana being diverted to other states?
  • Is the legitimate medical marijuana business being used as a cover or pretext for the traffic of other drugs or other criminal enterprises?
  • Are violence or firearms being used in the cultivation and distribution of marijuana?
  • Does the business contribute to drugged driving or other adverse public health issues?
  • Is marijuana being grown on public lands or in a way that jeopardizes the environment or public safety?
  • Is marijuana being used on federal property?

But now that the Cole Memo has be rescinded, federal prosecutors in cannabis legal states will now be free to decide how aggressively they wish to enforce federal marijuana laws. While State law and public acceptance of marijuana usage may temper federal prosecutors’ aggressiveness, this risk of seizure and shutdown is still real and for those cannabis businesses that are not licensed by the State, not only will they rise to the top of the Federal District Attorney’s list but also by State authorities. Criminal prosecution is also possible at both the Federal and State levels so it is important to have qualified legal counsel lined-up and available to intervene.

What Should You Do?

Considering the risks of cannabis you need to protect yourself and your investment, especially if you are not holding a valid license with the State. Level the playing field and gain the upper hand by engaging a Cannabis Tax Attorney at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), the Inland Empire (Ontario and Palm Springs) and other California locations. We can come up with solutions and strategies to these risks and protect you and your business to maximize your net profits. And if you are involved in crypto currency, check out what a Bitcoin Tax Attorney can do for you.

President Trump Seeking To Prosecute Legalized Adult-use Marijuana Businesses

/0 Comments/in , , , /by

On June 20, 2019, the House of Representatives voted to restrict the Department Of Justice (“DOJ”) from interfering with States that have legalized adult-use marijuana, including those allowing recreational use, cultivation and sales. This amendment was attached to a large-scale appropriations bill to fund parts of the federal government for Fiscal Year 2020.

But under the 2021 Federal Budget released by the Trump Administration, President Trump proposes slashing all legal protection for state medical marijuana programs which would open the door for the Drug Enforcement Administration (“DEA”) and other federal law enforcement agencies to use federal funds to shut down medical marijuana programs.

Marijuana Remains Illegal Under Federal Law

The Federal Controlled Substances Act (“CSA”) 21 U.S.C. § 812 classifies marijuana as a Schedule 1 substance with a high potential for abuse, no currently accepted medical use in treatment, and lack of accepted safety for use under medical supervision.

House Appropriations Bill Amendment

The Blumenauer McClintock Amendment sponsored by Reps. Earl Blumenauer (D-OR), Eleanor Holmes Norton (D-DC) and Tom McClintock (R-CA) that was included in the appropriations bill to fund parts of the federal government for Fiscal Year 2020, states that:

None of the funds made available under this House Appropriations Bill to the Department of Justice may be used to prevent to any State, territory or D.C. from implementing their own laws that authorize the use, distribution, possession, or cultivation of marijuana.

In the past such amendment (starting in 2014) was limited to medical marijuana state-licensed business but this expansion is huge given that nearly one in four Americans reside in a jurisdiction where the adult use of cannabis is legal under state statute.

Medical marijuana is legal in 33 states.

The medical use of cannabis is legal (with a doctor’s recommendation) in 33 states and Washington DC. Those 33 states being Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Hawaii, Illinois, Maine, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Montana, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, Utah, Vermont, Washington and West Virginia. The medical use of cannabis is also legal in the territories of the Northern Mariana Islands, Guam and Puerto Rico.

Recreational marijuana is legal in 11 states.

Eleven states and Washington DC, have legalized marijuana for recreational use — no doctor’s letter required — for adults over the age of 21. Those ten states being Alaska, California, Colorado, Illinois, Maine, Massachusetts, Michigan, Nevada, Oregon, Vermont and Washington and the territory of Guam.

Amendment Spearheaded By Rep. Earl Blumenauer, co-founder of the Congressional Cannabis Caucus.

The amendment was voted in by Congress in a 267 to 165 bipartisan vote. “It’s past time we protect all cannabis programs,” said Rep. Earl Blumenauer. “We have much more work to do. The federal government is out of touch and our cannabis laws are out of date. I’m pleased that the House agrees and we are able to move forward.”

The fate of whether this amendment will continue in the 2021 Federal budget is unknown for now. Historically the Senate’s Appropriations Committee has been relatively open to attaching marijuana riders to spending bills, and has consistently approved the medical cannabis protections, but the body’s Republican leadership may be reluctant to go against President Trump’s wishes when it comes to enforcing federal prohibition against licensed businesses and consumers in states that allow marijuana use and sales.

Keep in mind that if this amendment is part of the 2021 Federal budget that ultimately gets approved, to avail yourself of the protections of the amendment, you must be in complete compliance with your State’s cannabis laws and regulations. 

But until Federal law changes, the cannabis industry will still have to bear the followings risks and challenges:

Higher Taxes Still Remain

It still remains to be seen when favorable changes will be made to the Internal Revenue Code which treats businesses in the marijuana industry differently resulting in such business paying at least 3-times as much in taxes as ordinary businesses.

Generally, businesses can deduct ordinary and necessary business expenses under I.R.C. §162. This includes wages, rent, supplies, etc. However, in 1982 Congress added I.R.C. §280E. Under §280E, taxpayers cannot deduct any amount for a trade or business where the trade or business consists of trafficking in controlled substances…which is prohibited by Federal law. Marijuana, including medical marijuana, is a controlled substance. What this means is that dispensaries and other businesses trafficking in marijuana have to report all of their income and cannot deduct rent, wages, and other expenses, making their marginal tax rate substantially higher than most other businesses.

Reporting Of Cash Payments Still Remain

The Bank Secrecy Act of 1970 (“BSA”) requires financial institutions in the United States to assist U.S. government agencies to detect and prevent money laundering. Specifically, the act requires financial institutions to keep records of cash purchases of negotiable instruments, and file reports of cash purchases of these negotiable instruments of more than $10,000 (daily aggregate amount), and to report suspicious activity that might signify money laundering, tax evasion, or other criminal activities. The BSA requires any business receiving one or more related cash payments totaling more than $10,000 to file

IRS Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business.

The minimum penalty for failing to file EACH Form 8300 is $25,000 if the failure is due to an intentional or willful disregard of the cash reporting requirements. Penalties may also be imposed for causing, or attempting to cause, a trade or business to fail to file a required report; for causing, or attempting to cause, a trade or business to file a required report containing a material omission or misstatement of fact; or for structuring, or attempting to structure, transactions to avoid the reporting requirements. These violations may also be subject to criminal prosecution which, upon conviction, may result in imprisonment of up to 5 years or fines of up to $250,000 for individuals and $500,000 for corporations or both.

Marijuana-related businesses operate in an environment of cash transactions as many banks remain reluctant to do business with many in the marijuana industry. Like any cash-based business the IRS scrutinizes the amount of gross receipts to report and it is harder to prove to the IRS expenses paid in cash. So it is of most importance that the proper facilities and procedures be set up to maintain an adequate system of books and records.

How Do You Know Which Cannabis Tax Attorney Is Best For You?

Given that cannabis is still illegal under existing Federal law you need to protect yourself and your marijuana business from all challenges created by the U.S. government especially if President Trump’s budget proposal slashing all legal protection for state medical marijuana programs passes.  While cannabis is legal in California, that is not enough to protect you.  It’s coming down that the biggest risk is TAXES.  Be proactive and engage an experienced Cannabis Tax Attorney in your area. Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County, Los Angeles and other California locations protect you and maximize your net profits. And if you are involved in crypto currency, check out what a Bitcoin Tax Attorney can do for you.

Former Silk Road Senior Advisor Pleads Guilty In Manhattan Federal Court

/0 Comments/in , , , , /by

Roger Thomas Clark Pleads Guilty In Manhattan Federal Court

On January 30, 2020, the United States Attorney for the Southern District of New York (SDNY) issued a press release that Roger Thomas Clark, who was also known as “Plural of Mongoose” or “Variety Jones,” pled guilty for conspiring to distribute illicit narcotics in mass quantities. The press release stated that Mr. Clark was the senior advisor to the owner and operator of the Silk Road online illicit black market and in committing his crime also used the online nicknames “CaptainSargeant”, “VJ,” and “Cimon”.

What Was “Silk Road”?

“Silk Road” was created by Ross Ulbricht in January 2011.  He owned and operated an underground website until it was shut down by law enforcement authorities in October 2013.  Silk Road emerged as the most sophisticated and extensive criminal marketplace on the Internet at the time, serving as a sprawling black-market bazaar where unlawful goods and services, including illegal drugs including cannabis, were bought and sold regularly by the site’s users.  While in operation, Silk Road was used by thousands of drug dealers and other unlawful vendors to distribute hundreds of kilograms of illegal drugs and other unlawful goods and services to well over 100,000 buyers, and to launder hundreds of millions of dollars deriving from these unlawful transactions.

Silk Road enabled its users to buy and sell drugs and other illegal goods and services anonymously and outside the reach of law enforcement.  Silk Road was operated on what is known as “The Onion Router,” or “Tor” network, a special network of computers on the Internet, distributed around the world, designed to conceal the true IP addresses of the computers on the network and thereby the identities of the network’s users.  Silk Road also included a Bitcoin-based payment system that served to facilitate the illegal commerce conducted on the site, including by concealing the identities and locations of the users transmitting and receiving funds through the site.

Mr. Ulbricht was eventually convicted and is serving a life sentence without the possibility of parole. His appeal to the Supreme Court of the United States was denied on June 28, 2018.  Already he has been languishing in prison for half a decade now.

Clark Guilty Plea

The press release stated that Mr. Clark was described by Mr. Ulbricht as a “real mentor” who advised Ulbricht about, among other things, security vulnerabilities in the Silk Road site, technical infrastructure, and the rules that governed Silk Road users and vendors, and the promotion of sales on Silk Road, including the sales of narcotics.  Clark also provided advice to Ulbricht on developing a “cover story” to make it appear as though Ulbricht had sold Silk Road.  Clark also assisted with hiring programmers to help improve the infrastructure of, and maintain, Silk Road.  Clark also was responsible for gathering information on law enforcement’s efforts to investigate Silk Road and Clark advised Ulbricht on how to protect the Silk Road Empire.  For instance, when a Silk Road staff member was suspected of stealing $350,000 in Bitcoin from the site, Clark suggested to Ulbricht that Ulbricht commission a murder-for-hire.  Ulbricht took that suggestion.  (Ultimately, unbeknownst to both men, the attempted murder-for-hire did not result in any harm to the target.) Clark was paid at least hundreds of thousands of dollars for his assistance in operating Silk Road.

Mr. Clark, age 56 and a citizen of Canada, pled guilty to one count of conspiracy to distribute narcotics, which carries a maximum sentence of 20 years in prison.  He is scheduled to be sentenced in Federal District Court on May 29, 2020.

Clark’s Troubles Could Spill Over To IRS

For individuals nabbed by the Federal Government, it is not surprising that the IRS gets involved and they are also charged with tax crimes.

Failure to report all the money you make is a main reason folks end up facing an IRS auditor. Carelessness on your tax return might get you whacked with a 20% penalty. But that’s nothing compared to the 75% civil penalty for willful tax fraud and possibly facing criminal charges of tax evasion that if convicted could land you in jail.

Criminal Fraud – The law defines that any person who willfully attempts in any manner to evade or defeat any tax under the Internal Revenue Code or the payment thereof is, in addition to other penalties provided by law, guilty of a felony and, upon conviction thereof, can be fined not more than $100,000 ($500,000 in the case of a corporation), or imprisoned not more than five years, or both, together with the costs of prosecution (Code Sec. 7201).

The term “willfully” has been interpreted to require a specific intent to violate the law (U.S. v. Pomponio, 429 U.S. 10 (1976)). The term “willfulness” is defined as the voluntary, intentional violation of a known legal duty (Cheek v. U.S., 498 U.S. 192 (1991)).

And even if the IRS is not looking to put you in jail, they will be looking to hit you with a big tax bill with hefty penalties.

Civil Fraud – Normally the IRS will impose a negligence penalty of 20% of the underpayment of tax (Code Sec. 6662(b)(1) and 6662(b)(2)) but violations of the Internal Revenue Code with the intent to evade income taxes may result in a civil fraud penalty. In lieu of the 20% negligence penalty, the civil fraud penalty is 75% of the underpayment of tax (Code Sec. 6663). The imposition of the Civil Fraud Penalty essentially doubles your liability to the IRS!

What Should You Do?

It is risky enough to be involved in cannabis (which is illegal under Federal law) or crypto-currency, so imagine how much riskier it is combining both.  It is important to control this risk which you can do by engaging a cannabis tax attorney or a bitcoin tax attorney at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), Inland Empire (Ontario and Palm Springs) and other California locations.  We can come up with solutions and strategies to these risks and protect you and your business to mitigate criminal prosecution, seek abatement of penalties, and minimize your tax liability.