Request A Case Evaluation Or Tax Resolution Development Plan

IRS going after darknet narcotics vendors

Darknet Narcotics Vendors Selling to Thousands of U.S. Residents Accused Of Tax Crimes

Just because a State like California has legalized cannabis you cannot assume that the Feds will not pursue any charges and look to shut down your business.  Regardless of what type of business you operate, any business that is involved in such crimes as wire fraud and tax evasion could be subject to criminal prosecution by the Feds.

First Undercover Operation Targeting Darknet Vendors

In a press release issued by the U.S. Attorney’s Office on June 26, 2018, the Department of Justice, U.S. Immigration and Customs Enforcement’s Homeland Security Investigations (HSI), the U.S. Secret Service (USSS), the U.S. Postal Inspection Service (USPIS) and the U.S. Drug Enforcement Administration (DEA), announced the results of a year-long, coordinated national operation that used the first nationwide undercover action to target vendors of illicit goods on the Darknet. Special Agents of the HSI New York Field Division, in coordination with the U.S. Attorney’s Office for the Southern District of New York, posed as a money launderer on Darknet market sites, exchanging U.S. currency for virtual currency.  Through this operation, HSI New York were able to identify numerous vendors of illicit goods, leading to the opening of more than 90 active cases around the country. The Money Laundering and Asset Recovery Section (MLARS) of the Department of Justice’s Criminal Division, working with more than 40 U.S. Attorney’s Offices throughout the country, coordinated the nationwide investigation of over 65 targets, that lead to the arrest and impending prosecution of more than 35 Darknet vendors selling illicit goods and seizure of weapons, drugs and $23.6 million.

HSI Acting Executive Associate Director Benner stated “The Darknet is ever-changing and increasingly more intricate, making locating and targeting those selling illicit items on this platform more complicated.  But in this case, HSI special agents were able to walk amongst those in the cyber underworld to find those vendors who sell highly addictive drugs for a profit. The veil has been lifted. HSI has infiltrated the Darknet, and together with its law enforcement partners nationwide, it has proven, once again, that every criminal is within arm’s reach of the law.”

The extensive operation, which culminated in four weeks of more than 100 enforcement actions around the country, resulted in the following:

  • Federal arrests of more than 35 Darknet vendors who engaged in tens of thousands of sales of illicit goods;
  • Execution of 70 search warrants, resulting in the seizure of massive amounts of illegal narcotics, including 333 bottles of liquid synthetic opioids, over 100,000 tramadol pills, 100 grams of fentanyl, more than 24 kilograms of Xanax, and additional seizures of Oxycodone, MDMA, cocaine, LSD, marijuana, and a psychedelic mushroom grow found in a residence;
  • Seizure of more than 100 firearms, including handguns, assault rifles, and a grenade launcher;
  • Seizure of five vehicles that were purchased with illicit proceeds and/or used to facilitate criminal activity;
  • Seizure of more than $3.6 million in U.S. currency and gold bars;
  • Seizure of nearly 2,000 Bitcoins and other cryptocurrencies, with an approximate value of more than $20 million;
  • Confiscation of 15 pill presses, which are used to create illegal synthetic opioids; and
  • Seizure of Bitcoin mining devices, computer equipment, and vacuum sealers.

18 U.S.C. §1956 – Laundering Of Monetary Instruments

18 U.S.C. § 1956(a) defines three types of criminal conduct: domestic money laundering transactions (§ 1956(a)(1)); international money laundering transactions (§ 1956(a)(2)); and undercover “sting” money laundering transactions (§ 1956(a)(3)). Marijuana-related businesses need to be aware of domestic money laundering transactions (§ 1956(a)(1)).

To be criminally culpable under 18 U.S.C. § 1956(a)(1), a defendant must conduct or attempt to conduct a financial transaction, knowing that the property involved in the financial transaction represents the proceeds of some unlawful activity, and the property must in fact be derived from a specified unlawful activity.

Violations of § 1956 have a maximum potential 20-year prison sentence and a $500,000 fine or twice the amount involved in the transaction, whichever is greater. There is also a civil penalty provision in § 1956(b) which may be pursued as a civil cause of action. Under this provision, persons who engage in violations of any of the subsections of 1956(a) are liable to the United States for a civil penalty of not more than the greater of $10,000 or the value of the funds involved in the transaction.

Penalties For Filing A False Income Tax Return Or Under-reporting Income

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?

Although a criminal charge is only an accusation of a crime and a defendant is presumed innocent unless and until proven guilty, given the illegal status of cannabis under 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 board certified tax attorney-CPA in your area.  Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County, the San Francisco Bay Area (including San Jose and Walnut Creek) and other California locations protect you and maximize your net profits.

Request A Case Evaluation Or Tax Resolution Development Plan

Get a Tax Resolution Development Plan from us first before you attempt to deal with the IRS. There are several options for you to meet or connect with Board Certified Tax Attorney Jeffrey B. Kahn. Jeff will review your situation and go over your options and best strategy to resolve your tax problems. This is more than a mere consultation. You will get the strategy or plan to move forward to resolve your tax problems! Jeff’s office can set up a date and time that is convenient for you. By the end of your Tax Resolution Development Plan Session, if you desire to hire us to implement the strategy or plan, Jeff would quote you our fees and apply in full the session fee paid for the Tax Resolution Development Plan Session.

Types Of Initial Sessions:

Most Popular GoToMeeting Virtual Tax Development Resolution Plan Session
Maximum Duration: 60 minutes - Session
Fee: $350.00 (Credited if hired*)
Requires a computer, laptop, tablet or mobile device compatible with GoToMeeting. Please allow up to a 10-minute window following the appointment time for us to start the meeting. How secure is GoToMeeting? Your sessions are completely private and secure. All of GoToMeetings solutions feature end-to-end Secure Sockets Layer (SSL) and 128-bit Advanced Encryption Standard (AES) encryption. No unencrypted information is ever stored on our system.


Face Time or Standard Telephone Tax Development Resolution Plan Session
Maximum Duration: 60 minutes - Session
Fee: $350.00 (Credited if hired*)
Face Time requires an Apple device. Please allow up to a 10-minute window following the appointment time for us to get in contact with you. If you are located outside the U.S. please call us at the appointed time.


Reduced Fee Face-To-Face Tax Development Resolution Plan Session (Irvine Office Only)
Maximum Duration: 60 minutes - Session
Fee: $350.00 (Credited if hired*)
Session is held at our main office. 15615 Alton Parkway, Suite 450, Irvine, CA 92618.


Standard Fee Face-To-Face Tax Development Resolution Plan Session (Any Location Outside Our Irvine Office)
Maximum Duration: 60 minutes - Session
Fee: $600.00 (Credited if hired*)
Session is held at any of our offices outside our Irvine office or any other location you designate such as your financial adviser’s office or your accountant’s office, your place of business or your residence.


Jeff’s office can take your credit card information to charge the session fee which secures your session.

* The session fee is non-refundable and any allotted duration of time unused is not refunded; however, the full session fee will be applied as a credit toward future service if you choose to engage our firm.