What To Do If Your Economic Impact Payment Is Wrong

I think the amount of my Economic Impact Payment is incorrect.  What can I do?

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.  One of the most publicized provisions is the immediate cash payments by the Federal government to qualifying taxpayers.

Who is eligible for the economic impact payment?

To get cash assistance promptly delivered to individual taxpayers, qualifying taxpayers will receive one-time cash payments of $1,200 for individual taxpayers or if married, $2,400 for married couples.  An additional $500 may be paid for each qualifying child.

These amounts are subject to reduction if the individual’s Adjusted Gross Income (AGI) exceeds $75,000 for an individual taxpayer; $112,500 for head of household; or $150,000 for a married couple.

Nonresident alien individuals and a person who is the dependent of another are ineligible to receive the payment.

For filers with income above those amounts, the payment amount is reduced by $5 for each $100 above the $75,000/$150,000 thresholds. Single filers with income exceeding $99,000 and $198,000 for joint filers with no children are not eligible.

So if your economic impact payment is too low, how do you claim the missing funds?

The Treasury Department has reported that over 130 million Americans have received their economic impact payment.  While many have received the correct payment amount, some have reported receiving payments that were too low. One of the most common cases appears to be parents who did not receive $500 payments for each qualifying dependent child, despite filing a 2018 or 2019 tax return claiming children.

So if your economic impact payment was too low, how do you claim the missing funds?  Question #19 of the Frequently Asked Questions section on the IRS website provides the following answer:

“If you did not receive the full amount to which you believe you are entitled, you will be able to claim the additional amount when you file your 2020 tax return.  This is particularly important for individuals who may be entitled to the additional $500 per qualifying child dependent payments.”

In short, you’ll have to wait until at least the end of January 2021 to claim the missing amount as a tax credit, when you file your 2020 taxes.

An Opportunity For Taxpayers Who Owe The IRS

Do not think that if you owe the IRS 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 nation 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 IRS, you must be in current compliance. That means if you have any outstanding income tax returns, they must be completed and submitted to IRS.

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 IRS, as they are required to do.

Also, the IRS will continue to take steps where necessary to protect all applicable statutes of limitations. In instances where statute expirations might be jeopardized during this period and a taxpayer is not agreeing to extend such, the IRS will issue Notices of Deficiency and pursue other similar actions to protect the interests of the government in preserving such statute.

The take away from this – use the Federal 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. 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. You can also check out the KahnTaxLaw Coronavirus Resource Center.  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.

IRS Recalling Agents Back To Work

IRS Recalling Agents Back To Work

On April 24, 2020 the IRS issued an email to its employees that was shared with certain members of the House Ways and Means Committee.  The IRS email was released to the public by Chairman Richard Neal (D-Mass.) and Rep. John Lewis (D-Ga.).  The email directs “certain employees in mission-critical functions” to report to IRS offices starting Monday, April 27, 2020.

The IRS shuttered all of its processing and taxpayer assistance centers weeks ago protect its workforce from exposure to COVID-19.  While this measure slowed down the IRS, the IRS did not completely stop functioning as many agents continued their jobs by teleworking.

IRS Coronavirus Tax Relief 

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. You can also check out the KahnTaxLaw Coronavirus Resource Center.

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.

IRS Extends The 2019 Tax Season To July 15, 2020

The IRS extended the due date for Federal income tax payments and Federal income tax return filings from April 15, 2020, to July 15, 2020.

Taxpayers do not need to file any additional forms or call the IRS to qualify for this automatic federal tax filing and payment relief. Taxpayers who need additional time to file beyond the July 15 deadline, can request a filing extension by filing Form 4868 for individuals and Form 7004 for corporations.

But if you are due a refund you should file as soon as possible. The IRS states that most tax refunds are still being issued within 21 days.

IRS Commissioner Chuck Rettig’s Announcement Of “The IRS People First Initiative”

On March 25, 2020 the IRS issued a press release  announcing a sweeping series of steps to assist taxpayers by providing relief on a variety of issues ranging from easing payment guidelines to postponing compliance actions in what it calls “The IRS People First Initiative”.

These new changes include issues ranging from postponing certain payments related to Installment Agreements and Offers in Compromise to collection and limiting certain enforcement actions. The IRS will be temporarily modifying the following activities as soon as possible; the projected start date will be April 1, 2020 and the effort will initially run through July 15, 2020. During this period, to the maximum extent possible, the IRS will avoid in-person contacts.

Highlights of the key actions in the IRS People First Initiative include:

Relief For Existing Installment Agreements –For taxpayers under an existing Installment Agreement, payments due between April 1, 2020 and July 15, 2020 are suspended. Taxpayers who are currently unable to comply with the terms of an Installment Payment Agreement, including a Direct Deposit Installment Agreement, may suspend payments during this period if they prefer. Furthermore, the IRS will not default any Installment Agreements during this period. By law, interest will continue to accrue on any unpaid balances.

Preservation Of Offers in Compromise (OIC) – The IRS is taking several steps to assist taxpayers in various stages of the OIC process:

  • Pending OIC applications– The IRS will allow taxpayers until July 15, 2020 to provide requested additional information to support a pending OIC. In addition, the IRS will not close any pending OIC request before July 15, 2020, without the taxpayer’s consent.
  • OIC Payments– Taxpayers have the option of suspending all payments on accepted OICs until July 15, 2020, although by law interest will continue to accrue on any unpaid balances.
  • Delinquent Return Filings– The IRS will not default an OIC for those taxpayers who are delinquent in filing their tax return for tax year However, taxpayers should file any delinquent 2018 return (and their 2019 return) on or before July 15, 2020.

Limited Suspension Of Field Collection Activities – Liens and levies (including any seizures of a personal residence) initiated by field revenue officers will be suspended through July 15, 2020. However, field revenue officers will continue to pursue high-income non-filers and perform other similar activities where warranted.

Suspension Of New Automated Liens and Levies – New automatic, systemic liens and levies will be suspended during through July 15, 2020.

Suspension Of Passport Certifications to the State Department – IRS will suspend new certifications to the Department of State for taxpayers who are “seriously delinquent” through July 15, 2020.  Certification prevents taxpayers from receiving or renewing passports.

Suspension Of Forwarding New Accounts To Private Debt Collection – New delinquent accounts will not be forwarded by the IRS to private collection agencies to work through July 15, 2020.

Limited Suspension Of New Field, Office and Correspondence Audits – Through July 15, 2020, the IRS will generally not start new field, office and correspondence examinations. We will continue to work refund claims where possible, without in-person contact. However, the IRS may start new examinations where deemed necessary to protect the government’s interest in preserving the applicable statute of limitations.

Suspension Of In-Person Meetings – In-person meetings regarding current field, office and correspondence examinations will be suspended through July 15, 2020; however, these examinations can continue remotely, where possible.

Earned Income Tax Credit and Wage Verification Reviews – Taxpayers have until July 15, 2020, to respond to the IRS to verify that they qualify for the Earned Income Tax Credit or to verify their income. Until July 15, 2020, the IRS will not deny these credits for a failure to provide requested information.

Independent Office of Appeals – Appeals employees will continue to work their cases. Although Appeals is not currently holding in-person conferences with taxpayers, conferences may be held over the telephone or by video-conference.

An Opportunity For Taxpayers Who Owe The IRS

Do not think that if you owe the IRS 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 nation 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 IRS, you must be in current compliance. That means if you have any outstanding income tax returns, they must be completed and submitted to IRS.

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 IRS, as they are required to do.

Also, the IRS will continue to take steps where necessary to protect all applicable statutes of limitations. In instances where statute expirations might be jeopardized during this period and a taxpayer is not agreeing to extend such, the IRS will issue Notices of Deficiency and pursue other similar actions to protect the interests of the government in preserving such statute.

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 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.

Still Waiting For Your IRS Economic Impact Payment?

Still Waiting For Your IRS Economic Impact Payment?

As the IRS closed its web-based portal for non-filers and taxpayers for whom the IRS does not have your Direct Deposit Information, taxpayers with a filing requirement must file a tax return to get an Economic Impact Payment.

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.  One of the most publicized provisions is the immediate cash payments by the Federal government to qualifying taxpayers.

Who is eligible for the economic impact payment?

To get cash assistance promptly delivered to individual taxpayers, qualifying taxpayers will receive one-time cash payments of $1,200 for individual taxpayers or if married, $2,400 for married couples.  An additional $500 may be paid for each qualifying child.

These amounts are subject to reduction if the individual’s Adjusted Gross Income (AGI) exceeds $75,000 for an individual taxpayer; $112,500 for head of household; or $150,000 for a married couple.

Nonresident alien individuals and a person who is the dependent of another are ineligible to receive the payment.

For filers with income above those amounts, the payment amount is reduced by $5 for each $100 above the $75,000/$150,000 thresholds. Single filers with income exceeding $99,000 and $198,000 for joint filers with no children are not eligible.

How will the IRS know where to send my payment?

The vast majority of people do not need to take any action. The IRS will calculate and automatically send the economic impact payment to those eligible.

The cash payments will be based on the most recent tax information available to the IRS looking at a taxpayer’s 2019 tax return filed and if it has not yet been filed, then the taxpayer’s 2018 tax return filed.

The economic impact payment will be deposited directly into the same banking account reflected on the return filed.

So if you haven’t filed taxes yet for one of those years, now is a good time.

I need to file a tax return. How long are the economic impact payments available?

For those concerned about visiting a tax professional in person to get help with a tax return, these economic impact payments will be available throughout the rest of 2020.

What happens when I file a 2020 tax return next year? 

Keep in mind that if your 2020 tax return will reflect an AGI higher than the above applicable threshold, you should expect to pay back at least some or perhaps all of the cash payments you received under the CARES Act.

Beware Of New IRS Scam!

You get a call from someone claiming to be working for the IRS claiming:

“We need your personal information in order for you to claim the coronavirus stimulus money.”

This appears to be an identity theft scheme to obtain recipients’ personal and financial information so the scammers can provide the IRS with their banking information to get your economic impact payment deposited into their account.

In reality, the IRS WILL NOT CALL YOU! Federal aid will either be deposited via account information the IRS already has from your tax filings or they will send you a check.

Where can I get more information?

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.  You can also check out the KahnTaxLaw Coronavirus Resource Center.

An Opportunity For Taxpayers Who Owe The IRS

Do not think that if you owe the IRS 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 nation 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 IRS, you must be in current compliance. That means if you have any outstanding income tax returns, they must be completed and submitted to IRS.

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 IRS, as they are required to do.

Also, the IRS will continue to take steps where necessary to protect all applicable statutes of limitations. In instances where statute expirations might be jeopardized during this period and a taxpayer is not agreeing to extend such, the IRS will issue Notices of Deficiency and pursue other similar actions to protect the interests of the government in preserving such statute.

The take away from this – use the Federal 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. 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.

Emergency Cannabis Small Business Health and Safety Act Introduced In Congress – If You Can’t Beat Them, Then Join Them!

Emergency Cannabis Small Business Health and Safety Act Introduced In Congress – If You Can’t Beat Them, Then Join Them!

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 (Controlled Substances Act 21 U.S.C. 801). 

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.

How things have changed –  

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. 

Department Of Justice preferring cannabis legalization. 

Attorney General William Barr stated that he would prefer that Congress enact legislation allowing states to legalize marijuana instead of continuing the current approach under which a growing number of states have ended cannabis prohibition in conflict with federal law.

Given That COVID-19 Tax Relief is not available for state-licensed cannabis businesses, U.S. Senators Are 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.

Emergency Cannabis Small Business Health and Safety Act Introduced April 23, 2020

On April 23, 2020, Representatives Earl Blumenauer (D-OR) and Ed Perlmutter (D-CO) introduced the Emergency Cannabis Small Business Health and Safety Act in the House of Representatives. This legislation would allow legal cannabis businesses to be eligible for the SBA services provided in the CARES Act.

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

Higher Taxes Still Remain

While the developments listed above are favorable for cannabis business, 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.  So it is best to be proactive and engage an experienced cannabis tax attorney in your area who is highly skilled in the different legal and tax issues that cannabis businesses face.  Let the cannabis tax attorneys of 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 protect you and maximize your net profits.  Also, if you are involved in crypto currency, check out what a Bitcoin Tax Attorney can do for you.

COVID-19 Tax Relief: California Delays Sales Tax Payments For Small Businesses

COVID-19 Tax Relief: California Delays Sales Tax Payments For Small Businesses

In response to the COVID-19 pandemic, on March 30, 2020, Governor Gavin Newsom signed an executive order that will provide tax, regulatory and licensing extensions for businesses.

Order provides 90-day extension in state and local taxes, including sales tax

Order extends licensing deadlines and requirements for a number of industries

The executive order allows the California Department of Tax and Fee Administration (CDTFA) to offer a 90-day extension for tax returns and tax payments for all businesses filing a return for less than $1 million in taxes. That means small businesses will have until July 31, 2020 to file their first-quarter returns.

Additionally, the order extends the statute of limitations to file a claim for refund by 60 days to accommodate tax and fee payers.

Other Administrative Extensions Under The Executive Order

The executive order also includes extensions that impact state government workers, as well as consumers. For instance, the Department of Motor Vehicles will limit in-person transactions for the next 60 days, allowing instead for mail-in renewals. Additionally, the Department of Consumer Affairs will waive continuing education requirements for several professions, also for the next 60 days.

Further, the order will extend the Office of Administrative Law’s deadlines to review regular department proposed regulations. The order also extends by 60 days the time period to complete investigation of public safety officers based on allegations of misconduct. Finally, deadlines for trainings, investigations, and adverse actions for state workers will also be extended.

Small Businesses May Defer Up to $50,000 of Sales and Use Tax Liability for 12 Months

On April 2, 2020 Governor Newsom announced that all businesses with less than $5 million in annual taxable sales the ability to defer payment on up to $50,000 in sales and use tax liability without incurring any penalties or interest.  For taxpayers choosing to defer their 1st quarter 2020 liability, for example, up to $50,000 of the obligation would now be paid in twelve equal monthly installments, with the first payment not due until July 31, 2020.

An Opportunity For Taxpayers Who Owe The CDTFA

Do not think that if you owe the CDFTA 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.

Remember that COVID-19 does not alter the tax laws, so all taxpayers should continue to meet their tax obligations as normal.

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.

COVID-19 Employer Tax Relief Available for PPP Borrowers

COVID-19 Employer Tax Relief Available for PPP Borrowers

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 10, 2020 the IRS announced that borrowers participating in the Paycheck Protection Program (PPP) which provides low interest rates and possible tax-free loan forgiveness, are also eligible to defer paying the employer portion of social security payroll taxes from March 27, 2020 until their PPP loan is forgiven.

The amount of the deposit and payment of the employer’s share of social security tax that is deferred until loan forgiveness will be payable in two installments: 50% due on December 31, 2021 and the remainder on December 31, 2022.

What deposits and payments of employment taxes are employers entitled to defer?

Section 2302 of the CARES Act provides that employers may defer the deposit and payment of the employer’s portion of social security taxes and certain railroad retirement taxes. These are the taxes imposed under section 3111(a) of the Internal Revenue Code (the “Code”) and, for Railroad employers, so much of the taxes imposed under section 3221(a) of the Code as are attributable to the rate in effect under section 3111(a) of the Code (collectively referred to as the “employer’s share of social security tax”). Employers that received a PPP loan may not defer the deposit and payment of the employer’s share of social security tax that is otherwise due after the employer receives a decision from the lender that the loan was forgiven.

When can employers begin deferring deposit and payment of the employer’s share of social security tax without incurring failure to deposit and failure to pay penalties?

The deferral applies to deposits and payments of the employer’s share of social security tax that would otherwise be required to be made during the period beginning on March 27, 2020, and ending December 31, 2020. (Section 2302 of the CARES Act calls this period the “payroll tax deferral period.”)

IRS states that the Form 941, Employer’s QUARTERLY Federal Tax Return, will be revised for the second calendar quarter of 2020 (April – June, 2020) and the IRS will provide information to instruct employers how to reflect the deferred deposits and payments otherwise due on or after March 27, 2020 for the first quarter of 2020 (January – March 2020).  In no case will Employers be required to make a special election to be able to defer deposits and payments of these employment taxes.

Which employers may defer deposit and payment of the employer’s share of social security tax without incurring failure to deposit and failure to pay penalties?

All employers may defer the deposit and payment of the employer’s share of social security tax. However, employers that receive a loan under the Small Business Administration Act, as provided in section 1102 of the CARES Act (the Paycheck Protection Program), may not defer the deposit and payment of the employer’s share of social security tax due on or after the date that the PPP loan is forgiven under the CARES Act.

Can an employer that has applied for and received a PPP loan that is not yet forgiven defer deposit and payment of the employer’s share of social security tax without incurring failure to deposit and failure to pay penalties?

Yes. Employers who have received a PPP loan, but whose loan has not yet been forgiven, may defer deposit and payment of the employer’s share of social security tax that otherwise would be required to be made beginning on March 27, 2020, through the date the lender issues a decision to forgive the loan in accordance with paragraph (g) of section 1106 of the CARES Act, without incurring failure to deposit and failure to pay penalties. Once an employer receives a decision from its lender that its PPP loan is forgiven, the employer is no longer eligible to defer deposit and payment of the employer’s share of social security tax due after that date. However, the amount of the deposit and payment of the employer’s share of social security tax that was deferred through the date that the PPP loan is forgiven continues to be deferred and will be due on the “applicable dates” as described below.

Is this ability to defer deposits of the employer’s share of social security tax in addition to the relief provided in IRS Notice 2020-22 for deposit of employment taxes in anticipation of the Families First Coronavirus Relief Act (FFCRA) paid leave credits and the CARES Act employee retention credit?

Yes. IRS Notice 2020-22 provides relief from the failure to deposit penalty under section 6656 of the Code for not making deposits of employment taxes, including taxes withheld from employees, in anticipation of the FFCRA paid leave credits and the CARES Act employee retention credit. The ability to defer deposit and payment of the employer’s share of social security tax under section 2302 of the CARES Act applies to all employers, not just employers entitled to paid leave credits and employee retention credits.

Can an employer that is eligible to claim refundable paid leave tax credits or the employee retention credit defer its deposit and payment of the employer’s share of social security tax prior to determining the amount of employment tax deposits that it may retain in anticipation of these credits, the amount of any advance payments of these credits, or the amount of any refunds with respect to these credits?

Yes. An employer is entitled to defer deposit and payment of the employer’s share of social security tax prior to determining whether the employer is entitled to the paid leave credits under sections 7001 or 7003 of FFCRA or the employee retention credit under section 2301 of the CARES Act, and prior to determining the amount of employment tax deposits that it may retain in anticipation of these credits, the amount of any advance payments of these credits, or the amount of any refunds with respect to these credits.

What are the applicable dates by which deferred deposits of the employer’s share of social security tax must be deposited to be treated as timely (and avoid a failure to deposit penalty)?

The deferred deposits of the employer’s share of social security tax must be deposited by the following dates (referred to as the “applicable dates”) to be treated as timely (and avoid a failure to deposit penalty):

  1. On December 31, 2021, 50% of the deferred amount; and
  2. On December 31, 2022, the remaining amount.

What are the applicable dates when deferred payment of the employer’s share of social security tax must be paid (to avoid a failure to pay penalty under section 6651 of the Code)?

The deferred payment of the employer’s share of social security tax is due as follows:

  1. On December 31, 2021, 50% of the deferred amount; and
  2. On December 31, 2022, the remaining amount.

Are self-employed individuals eligible to defer payment of self-employment tax on net earnings from self-employment income?

Yes. Self-employed individuals may defer the payment of 50% of the social security tax on net earnings from self-employment income imposed under section 1401(a) of the Code for the period beginning on March 27, 2020, and ending December 31, 2020. (Section 2302 of the CARES Act calls this period the “payroll tax deferral period”).

Is there a penalty for failure to make estimated tax payments for 50% of social security tax on net earnings from self-employment income during the payroll tax deferral period? 

No. For any taxable year that includes any part of the payroll tax deferral period, 50% of the social security tax imposed on net earnings from self-employment income during that payroll tax deferral period is not used to calculate the installments of estimated tax due under section 6654 of the Code.

What are the applicable dates when deferred payment amounts of 50% of the social security tax imposed on self-employment income must be paid?

The deferred payment amounts are due as follows:

  1. On December 31, 2021, 50% of the deferred amount; and
  2. On December 31, 2022, the remaining amount.

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), Northern California (including Sacramento, San Francisco 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. 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.

Beware Of Unsupported Claims That Cannabis Or CBD Products Will Protect Or Cure You From Coronavirus

Beware Of Unsupported Claims That Cannabis Or CBD Products Will Protect Or Cure You From Coronavirus

The Federal Trade Commission (FTC) and U.S. Food and Drug Administration (FDA) announced that they have sent warning letters to companies allegedly selling unapproved products that may violate federal law by making deceptive or scientifically unsupported claims about their ability to treat or cure coronavirus (COVID-19).  Some of the letters sent by the agencies include CBD Online Store, Indio Naturals, Native Roots Hemp and Neuro XPF.

As of yet no substantiated clinical data supporting either the prophylactic or therapeutic use of cannabis products in the treatment of COVID-19. 

Smoking Though Could Put You At Risk

A report issued by the World Health Organization states that tobacco and waterpipe could increase the risk of suffering from COVID-19 as this is a respiratory illness.

The report recognizes that tobacco use is the most important risk-factor for chronic obstructive pulmonary disease (COPD), causing the swelling and rupturing of the air sacs in the lungs, which reduces the lung’s capacity to take in oxygen and expel carbon dioxide, and the build-up of mucus, which results in painful coughing and breathing difficulties. This may have implications for smokers, given that smoking is considered to be a risk factor for any lower respiratory tract infection and the virus that causes COVID-19 primarily affects the respiratory system, often causing mild to severe respiratory damage. Clearly for cannabis edibles this is not an issue.  However, given that COVID-19 is a novel virus, the link between tobacco smoking or even smoking cannabis and the virus has yet to be established so more research will be necessary.

DEA Taking Action To Improve Access To Cannabis Research

The Drug Enforcement Administration (“DEA”) announced on August 26, 2019 that it is moving forward to facilitate and expand scientific and medical research for marijuana in the United States. The DEA is providing notice of pending applications from entities applying to be registered to manufacture marijuana for researchers.

DEA Acting Administrator Uttam Dhillon stated: “the DEA is making progress in the program to register additional marijuana growers for federally authorized research, and will work with other relevant federal agencies to expedite the necessary next steps. We support additional research into marijuana and its components, and we believe registering more growers will result in researchers having access to a wider variety for study.”

Since 1968, only the University of Mississippi has been allowed to cultivate and provide cannabis to medical researchers across the country. The DEA anticipates that registering additional qualified marijuana growers will increase the variety of marijuana available for these purposes.

DEA’s Position Runs Against The General Anti-Federal U.S. Climate

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. Although you can still face federal criminal charges for using, growing, or selling weed in a manner that is completely lawful under California law, the federal authorities in the past have pulled back from targeting individuals and businesses engaged in medical marijuana activities. This pull back came from Department of Justice (“DOJ”) Safe Harbor Guidelines issued in 2013 under what is known as the “Cole Memo”.

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?

Since 2013, these guidelines provided a level of certainty to the marijuana industry as to what point could you be crossing the line with the Federal government.  But on January 4, 2018, former Attorney General Jeff Sessions revoked the Cole Memo.  Now U.S. Attorneys in the local offices throughout the country retain broad prosecutorial discretion as to whether to prosecute cannabis businesses under federal law even though the state that these businesses operate in have legalized some form of marijuana.

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.

Building on the DOJ’s issuance of the Cole Memo, in 2014 the House passed an amendment to the yearly federal appropriations bill that effectively shields medical marijuana businesses from federal prosecution. Proposed by Representatives Rohrabacher and Farr, the amendment forbids federal agencies to spend money on investigating and prosecuting medical marijuana-related activities in states where such activities are legal.

This action by the House is not impacted by former Attorney General Sessions’ change of position with the DOJ. This means that the DOJ is precluded from spending funds to circumvent any of the foregoing states from implementing their medical cannabis laws.

Clearly, to avail yourself of the historical protections of the amendment, you must be on the medical cannabis side and you must be in complete compliance with your State’s medical cannabis laws and regulations. You may not be covered under the amendment if you are involved in the recreational cannabis side even if legal in the State you are operating.

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 (Irvine), Metropolitan Los Angeles (including Long Beach and Ontario) and other California locations protect you and maximize your net profits. By the way – if you are involved in crypto currency, check out what a bitcoin tax attorney can do for you.

IRS Announces Temporary Procedures To Fax Forms 1139 And 1045 Due To COVID-19

IRS Announces Temporary Procedures To Fax Forms 1139 And 1045 Due To COVID-19

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 13, 2020 the IRS issued temporary procedures to fax certain Forms 1139 and 1045 due to COVID-19.

The following provisions have retroactive effect that business may be able to claim refunds of previously paid taxes by filing amended tax returns (using Forms 1139 or 1045) for 2018:

Suspension Of Restrictions On The Use Of Net Operating Losses (Section 2303 of The CARES Act)

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 (Section 2303 of The CARES Act)

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 (Section 2305 of The CARES Act)

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.

Only claims allowed under sections 2303 and 2305 of the CARES Act that are made on Form 1139 or Form 1045 are eligible refund claims under temporary procedures described below

Temporary Procedures For Digital Transmissions Of Forms 1139 Or 1045

Starting on April 17, 2020 and until further notice, the IRS will accept eligible refund claims Form 1139 submitted via fax to 844-249-6236 and eligible refund claims Form 1045 submitted via fax to 844-249-6237. Before then, these fax numbers will not be operational.

File size limitations: A maximum of 100 pages can be initially faxed to either of the fax numbers listed above. If additional documentation is required to be attached or deemed to be necessary, taxpayers will be notified during the processing of the Form 1139 or Form 1045.

How does the process change from the normal hard copy mailing requirement?

Previously, these forms could be filed only via hard copy delivered through the USPS or by a private delivery service. This temporary procedure to accept these forms via fax permits the IRS to make the relief in the CARES Act available to taxpayers before IRS processing centers are able to reopen. The procedures to process claims will remain the same – the only difference is to allow an additional method to file eligible refund claims.

If I previously mailed in my Form 1139 or Form 1045, can I now fax it to these numbers?

Yes.  The IRS states that if you previously mailed a hard copy of either of these forms that is an eligible refund claim (because it contains changes permitted by the AMT and NOL provisions of the CARES Act identified above) after March 27, 2020, you can now submit that same claim to the fax numbers stated above starting on April 17.

Is there an order of priority in processing Form 1139 and Form 1045 under this temporary fax procedure?

The IRS states that all claims (including those received before IRS processing centers were closed) will be processed in the order of receipt.

What happens if a document faxed as instructed above is deemed an ineligible refund claim under this temporary fax procedure?

The IRS states it will be processed after normal operations resume.

Section 2303 of the CARES Act amended section 172(b)(1) to provide for a carryback of any net operating loss (NOL) arising in a taxable year beginning after December 31, 2017, and before January 1, 2021, to each of the five taxable years preceding the taxable year in which the loss arises (carryback period). I am carrying back an NOL to a tax year in which I have a section 965(a) inclusion (section 965 year) and am now entitled to a refund for the section 965 year because my section 965 net tax liability is fully paid. May I use Form 1139 or Form 1045, as applicable, to apply for a refund for the section 965 year?

Yes.  The IRS states you may disregard the instructions for Form 1139 and Form 1045 which prohibit taxpayers from using these forms to apply for refunds for section 965 years. The instructions to these forms will be updated to reflect this change. However, please be aware that because the CARES Act added section 172(b)(1)(D)(iv) to provide that a taxpayer who has a carryback to a section 965 year is deemed to have made a section 965(n) election that limits the amount of the loss that can be carried back to each such year, an NOL can be carried back only to reduce income in excess of the amount of the net section 965(a) inclusion. The IRS expects to issue additional instructions on filing requests for tentative refunds for taxpayers with outstanding section 965(h) net tax liabilities, so that these requests and liabilities can be identified, routed, and tracked appropriately, and so that payment schedules can be adjusted to avoid unintentional or erroneous acceleration of deferred section 965(h) installment payments, delays in refunds, or other processing complications.

Will the IRS be establishing a similar procedure for Form 4466 “Corporation Application for Quick Refund of Overpayment of Estimated Tax”?

No.  The IRS states that the Form 4466 must be filed in accordance with existing form instructions. If a Form 4466 is faxed to one of the fax numbers noted above, it will not be accepted for processing.

Will this temporary faxing process become permanent?

No.  The IRS stated that accepting faxed versions of these forms that are normally delivered through the USPS or by a private delivery service is meant as a short-term measure to assist taxpayers in receiving refunds provided under the CARES Act as quickly as possible.

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), Northern California (including Sacramento, San Francisco 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. 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.

A Tax Benefit In The COVID-19 Stimulus Package Available To Cannabis Businesses

A Tax Benefit In The COVID-19 Stimulus Package Available To Cannabis Businesses

Deferral of Employer Social Security Taxes – A Benefit That Should Be Available To Cannabis 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 … which for the most part do not benefit cannabis businesses to the extent non-cannabis businesses will benefit.

Anyone conducting business in cannabis surely knows that under Federal law (Controlled Substances Act 21 U.S.C. 801) marijuana is designated as a Schedule I controlled substance due to the historical belief that it has a high potential for abuse, no currently accepted medical use in treatment, and lack of accepted safety for use under medical supervision.

CARES Act Relief For Businesses

The CARES Act offers the following three major “stimulus” provisions for businesses: the Employee Retention Credit, the Paycheck Protection Program and Deferral of Employer Social Security Taxes.

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.

Deferral of Employer Social Security Taxes – A Benefit That Should Be Available To Cannabis Businesses

Beginning April 2020, under CARES Act, Section 2302 all employers may elect to defer payment of the 6.2% employer Social Security tax through December 31, 2020. Deferred tax amounts would be paid in equal amounts over two years, with payments due on December 31, 2021 and December 31, 2022.  Because this provision involves the payment of employment taxes imposed on employers regardless of what industry the employer is in, cannabis businesses which while governed by IRC §280E for income tax purposes should still be able to qualify for this deferral.

This deferral is not available to employers receiving assistance through the PPP which as discussed above cannabis businesses do not qualify.  Further, given that cannabis businesses do not qualify for the tax credits granted under the CARES Act, this deferral could be substantial tax relief benefit for cannabis businesses.

As a deferral, these employment taxes will become collectible by the IRS starting in December 2021 so cannabis employers should keep careful track of amounts accrued and be prepared to pay the amounts when due.

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.