IRS Tax covers federal tax issues impacting cannabis

by abizcannabis on September 26, 2019 Leave a Comment

SAFE Banking Passes House

SAFE Banking Passes

SAFE Banking Passes The Secure and Fair Enforcement (SAFE) Banking Act, sponsored by Rep. Ed Perlmutter (D-CO), currently has 206 cosponsors, including 26 Republicans. It would shield banks that take on marijuana business clients from being penalized by federal regulators. Perlmutter moved to add amendments to the legislation last week—clarifying that the protections extend to hemp and CBD businesses and prohibiting regulators from targeting certain industries such as firearms dealers as a higher risk for fraud—in order to bolster its GOP appeal. The SAFE Banking Act is the first piece of standalone cannabis reform legislation to get a House floor vote. Advocates and lawmakers have emphasized that this bill represents the first in a series of reform moves Congress will take, with the ultimate goal being to end federal marijuana prohibition.

“I support legislation that de-schedules marijuana federally, requires courts to expunge convictions for marijuana-related offenses, and provides assistance such as job training and reentry services for those who have been disproportionately affected by the war on drugs,” she said.

The comments come after several advocacy groups including the ACLU, Drug Policy Alliance, and Human Rights Watch sent a letter to House leadership urging a delay on the banking vote until broader reform passed.

The second-highest-ranking Democratic in the House said on Wednesday that the House should take up comprehensive marijuana legalization legislation after the passage of a bipartisan cannabis banking bill. Hours before the House voted in favor of the Secure and Fair Enforcement (SAFE) Banking Act by a significant margin, Majority Leader Steny Hoyer (D-MD) released a statement saying that while he is “proud” to have put the bill on the floor, “I believe it does not go far enough.”

“This must be a first step toward the decriminalization and de-scheduling of marijuana, which has led to the prosecution and incarceration of far too many of our fellow Americans for possession,” he said, adding that a number of legalization bills have been introduced that could be advanced.

Waters said “I have long fought for criminal justice reform and deeply understand the need to fully address the historical racial and social inequities related to the criminalization of marijuana.

by abizcannabis on August 25, 2019 Leave a Comment

Blather – Prattle – Outsourcing

Blather – Prattle – Outsourcing – The AICPA and state CPA Societies have developed and provide a substantial number of tools to support CPA firms in professional practice. A CPA is responsible for compliance with the same professional standards mandated by State Boards of Accountancy, the Internal Revenue Service under Circular 230 [for attorneys, CPAs, and Enrolled Agents] or the Return Preparer Office for non-professional tax return preparers. CPAs that are AICPA and State Society members are subject to additional sets of professional standards for attest, tax, and consulting services.

We are going to use this Dropbox Showcase as support to our mark up of the “Brand X Freelance”

document so readers are able to better understand the difference between a structured CPA firm, and an individual that in operating as a “one-man-band”.

Blather – Prattle – Outsourcing

My own experience is that after completing a BS in Accountancy at the University of Illinois – Urbana in five semesters, I passed the Uniform CPA exam in May 1982 and won the Elijah Watt Sells Silver Medal for the second-highest scores on the exam out of 70,000 candidates. I attended the University of Texas – Austin and completed an MS – Taxation in a year. As an aside, the programs at those two schools have been consistently ranked as the best or second-best programs of Accountancy and Tax in the United States every year since 1982 [See https://www.usnews.com/best-colleges/university-of-texas-3658, https://www.usnews.com/best-colleges/university-of-illinois-urbanachampaign-1775, https://www.accounting-degree.org/best-graduate-schools-for-accounting/, and

After graduation from UT – Austin, I joined a Big 8 [precursor to Big 4] accounting firm – Arthur Andersen LLP’s New York Office as a Tax Associate in October 1983, promoted to Tax Senior in May 1984, promoted to Tax Manager in May 1986, and admitted as a full equity Tax Partner in July 1991, three months after my 30th birthday [turns out I was possibly the youngest person to become what is called an SC Partner. The total time from joining the firm to becoming a partner was eight years…go ahead and ask anyone that works for a Big 4 firm how long it would take them to become a partner…my bet is that their answer is twelve to fifteen years, if ever. Eventually, I became the Managing Partner for the Metro New York Real Estate Practice with approximately 300 professionals and $450MM in net collected annual fees. One would hope, that would dispatch any questions of my education and experience to comment on the requirements and challenges of both controlling practice risks and managing a firm’s tax practice with appropriate risk and quality control procedures and systems in place.

Blather – Prattle – Outsourcing

The reason for my explanation and the long discussion is that the experience with Arthur Andersen was critically important in providing an opportunity to acquire the skills required for success in professional tax practice. A generic accountant or a CPA that goes to work for a small firm that doesn’t have the quality controls and provide the training is ill-equipped to provide professional services to an individual or a business with complex requirements.

The second lesson I learned is having twenty Tax Partners in the same office with me meant that there was always a peer with comparable skills available to discuss a problem, evaluate risk, or reach a conclusion. The adage “no one partner has the right or responsibility to make a difficult decision on their own, there is always someone to share thoughts and concerns in reaching a difficult conclusion available. It has been a tremendous challenge to replicate that shared responsibility and knowledge in a smaller firm. However, through much hard work, we have been successful at it, and you can see that if you review the recommendation [roughly 40 of them] contained in my Linkedin profile at https://www.linkedin.com/in/jordanzoot/.

Blather – Prattle – Outsourcing

You can review the website for our Oakland based Cannabis Practice Group [“CPG”] at http://dopecpa.cool. A repository of our published articles can be found either through our article search tool at https://abizinaboxcannabis.com/abizinabox-cannabis/post-index/, or an index of our published articles on CannabisLaw.report at https://cannabislaw.report/category/jordan-zoot/.

Finally, Tax Notes, which along with Bloomberg’s Daily Tax Reporter are regarded as the “gold standards” in current articles about tax practice, legislation and policy in the United States published an article about how I as a Wall Street-based high complexity tax practitioner wound up working with a bunch of cannabis farmers in Humboldt County, California. You can read the article at https://cannabislaw.report/tax-notes-features-our-columnist-jordan-zoot-in-recent-article-on-tax-cannabis-advice/.

Finally, before you begin reviewing the materials, you might enjoy our highly rated discussion on how to select a tax advisor for a cannabis business at https://abizinaboxcannabis.com/choosing-cannabis-tax-advisors/, and another article on the Regulation of Circular 230 Practitioners You can also immediately verify if an individual is a certified public accountant in good standing anywhere in the United States at https://cpaverify.com. After reflecting, we decide to reference our piece on Addressing Professional Incompetence.

Blather – Prattle – Outsourcing

Our mark-up of the document appears below. A substantial amount of tools and resources from the AICPA for small and mid-sized CPA firms can be found here.

If you are in the cannabis industry and would prefer to deal with a CPA firm that provides high complexity professional skills for accounting, attest, tax and regulatory compliance, we should talk and you can start with the form below. If you are seeking bullshit, “feel-good speak”, prattle, blather or gibberish, we suggest you look elsewhere. Some should be grateful that stupidity isn’t a crime, as that would make this a capital case.

Blather – Prattle – Outsourcing

by abizcannabis on August 16, 2019 Leave a Comment

IRS Updates CTR Exams

IRS Updates CTR Exams – While we do a very significant amount of writing for our clients, partners, friends and the cannabis industry in California as a whole, we also do a very substantial amount of reading, and perhaps our three “go-to reads” are

Tax Talk – Virginia La Torre Jecker, Esq or Let’s Talk About US Tax“ – Virginia is the expert to turn to when it comes to US tax matters affecting international individuals Many US persons face US tax issues simply because they live abroad, purchase foreign assets or have a non-US spouse.

Tax Litigator Blog written by the attorneys at Hochman Salkin Toscher Perez P.C. whom we have known for quite some time, and we regard as among the best of breed tax litigators and criminal tax attorneys on the West Coast.

John Schroyer’s Columns at MJBizDaily – John is one of the few cannabis industry reporters in that covers the legal industry in California that understands what investigative journalism is all about.

Each of the three sources listed above has unique features and content that complement our ability to keep our followers informed and up to date. We thought that preface was long overdue, and now to today’s article.

IIRS Updates CTR Exams

Steve Toscher, Esq. has written an article that seeks to summarize an update to Internal Revenue Manual [“IRM”] Sec. 4.10.4 entitled “The IRS Is Using Its Big Data and Reminds Us and Its Agents That They Have Access to Records of Large Cash Transactions at Financial Institutions“.

The IRS has recently provided interim guidance to clarify actions IRS Examiners musttake to analyze and document Currency Transaction Report (CTR) data during an audit. The Guidance, which is effective immediately, will be incorporated into IRM 4.10.4, Examination of Returns, Examinations of Income.
Prior to incorporation, IRM 4.10.4 provided very little guidance on when and how to use the Financial Crimes Enforcement Network’s (FinCEN) Currency Transaction Reports [See Structuring Rules ]. However, this new guidance assists examiners during an audit of a taxpayer’s returns and income.
The Guidance
Financial institutions are required to report all transactions of currency that exceed $10,000 by filing a FinCEN CTR. Information from this filing may be used by an examiner to decide whether to use additional auditing techniques, question sources of income for which tax has not been withheld, and generate leads for potential unreported income, money laundering transactions, and other tax avoidance schemes.
IRS Updates CTR Exams
A CTR provides information that an individual was involved in a transaction that exceeded $10,000. It does not provide information as to who the money belonged to. To remedy this situation, the Guidance has provided the following actions an examiner should take to determine whether the individual names on a CTR is the taxpayer in question:
The examiner must confirm the information on the CTR is for the taxpayer in question.
The examiner must confirm the bank account on the CTR is the taxpayer’s, or whether the bank account belongs to an entity related to the taxpayer.
The examiner must trace the transaction on the CTR to the taxpayer’s bank account.
The examiner must determine the origin of the transaction.
If the examiner is unable to establish a relationship between the CTR and taxpayer through an analysis of the financial accounts, the examiner should ask the taxpayer if they were involved in cash transactions over $10,000.
If the examiner cannot trace the transaction and the taxpayer denies involvement in transactions over $10,000, the examiner may consider issuing a summons for the bank account listed on the CTR.
Examiners must document the steps taken to trace a CTR and their conclusions.
IRS Updates CTR Exams

Our view is that Mr. Toscher’s analysis is an excellent start, but it fails to highlight a number of concerns that perhaps are more apparent to us as CPA’s. They include

A rather unexpected and inept focus by the document’s authors on withdrawals from accounts and financial institutions for expenditures, as the funds in those accounts, have already been traced.

Financial institutions, including casinos, must report each receipt and each withdrawal of currency exceeding $10,000 by filing a FinCEN Currency Transaction Report (CTR). See IRM 4.26.5.4.1, Currency Transaction Reports, for information on the FinCEN forms used for reporting CTRs.

The concept of FinCen Query Request [‘FCQ”] needs to be elaborated upon [1]

IRS Updates CTR Exams

The Title 31 implications for structuring transactions to avoid the rules require further development, particularly for non-plant touching businesses that serve the cannabis industry, particularly Circular 230 Practitioners.

IRS Updates CTR Exams

[1] FinCEN Query (FCQ) is an on-line database query application that replaced the Web-based Currency and Banking Retrieval System (WebCBRS) on February 1, 2014, for all Bank Secrecy Act (BSA) users and on March 31, 2014, for all other IRS users. The FCQ application was developed by the Financial Crimes Enforcement Network (FinCEN) as part of the BSA Information Technology Modernization Program and is accessed via the secure FinCEN Portal at https://bsa.fincen.gov. The FCQ application supports a wide range of law enforcement and regulatory users for access to perform report and data information queries on the millions of BSA reports housed within the FCQ database. The system is designed to provide users with expanded query capabilities, including the ability to query multiple fields, use of four available search options, and use of various search methods to narrow or expand query results.

BSA report filings, as required under 31 USC Chapter 53 and 31 CFR Chapter X, are input and processed through the FinCEN BSA E-Filing System located at http://bsaefiling.fincen.treas.gov. E-filing of these reports became mandatory on April 1, 2013, with the exception of the Report of Foreign Bank and Financial Accounts (FBAR) and Form 8300, Report of Cash Payments Over $10,000 Received in Trade or Business. E-filing of FBAR became mandatory on July 1, 2013. Form 8300 filers currently have the option to file these reports electronically or in paper format. FinCEN Form 105, Report of International Transportation of Currency and Monetary Instruments (CMIR), is submitted and processed through the U.S. Customs and Border Protection in the Homeland Security Department.

IIRS Updates CTR Exams

by abizcannabis on July 26, 2019 Leave a Comment

IRS – Kleptocurrency?

IRS – Kleptocurrency? – the IRS issued a new announcement about a program focused on taxpayers involved with cryptocurrency this week.

The Internal Revenue Service has begun sending letters to taxpayers with virtual currency transactions that potentially failed to report income and pay the resulting tax from virtual currency transactions or did not report their transactions properly.
“Taxpayers should take these letters very seriously by reviewing their tax filings and when appropriate, amend past returns and pay back taxes, interest, and penalties,” said IRS Commissioner Chuck Rettig. “The IRS is expanding our efforts involving virtual currency, including increased use of data analytics. We are focused on enforcing the law and helping taxpayers fully understand and meet their obligations.”
IRS – Kleptocurrency?
The IRS started sending the educational letters to taxpayers last week. By the end of August, more than 10,000 taxpayers will receive these letters. The names of these taxpayers were obtained through various ongoing IRS compliance efforts.
For taxpayers receiving an educational letter, there are three variations: Letter 6173, Letter 6174 or Letter 6174-A, all three versions strive to help taxpayers understand their tax and filing obligations and how to correct past errors.
Taxpayers are pointed to appropriate information on IRS.gov, including which forms and schedules to use and where to send them.
Last year the IRS announced a Virtual Currency Compliance campaign to address tax noncompliance related to the use of virtual currency through outreach and examinations of taxpayers. The IRS will remain actively engaged in addressing non-compliance related to virtual currency transactions through a variety of efforts, ranging from taxpayer education to audits to criminal investigations.
IRS – Kleptocurrency?
Virtual currency is an ongoing focus area for IRS Criminal Investigation.
IRS Notice 2014-21 (PDF) states that virtual currency is property for federal tax purposes and provides guidance on how general federal tax principles apply to virtual currency transactions. Compliance efforts follow these general tax principles. The IRS will continue to consider and solicit taxpayer and practitioner feedback in education efforts and future guidance.
The IRS anticipates issuing additional legal guidance in this area in the near future.
IRS – Kleptocurrency?

Taxpayers who do not properly report the income tax consequences of virtual currency transactions are, when appropriate, liable for tax, penalties, and interest. In some cases, taxpayers could be subject to criminal prosecution.”

IRS – Kleptocurrency?

by abizcannabis on July 2, 2019 Leave a Comment

Trump Return Litigation

Please excuse us…we don’t do this too often, but this one wins a prize. The full case text is at

Trump Return Litigation – The House Ways and Means Committee sued Treasury and its Secretary Steven Mnuchin, the Internal Revenue Service and Commissioner Chuck Rettig in a Washington, D.C., federal court after they rejected multiple requests and a subpoena for six years’ worth of Trump’s tax information. Ways and Means Chairman Richard Neal, D-Mass., made the request for Trump’s tax information under Section 6103 of the Internal Revenue Code, which states that the Treasury secretary “shall furnish” the tax records of any individual to the chairs of the Ways and Means Committee, Senate Finance Committee or the Joint Committee on Taxation upon their request.

“Defendants have now—for what the Committee believes is the first time ever— denied a Section 6103(f) request in order to shield President Trump’s tax return information from Congressional scrutiny,” the complaint said. “In refusing to comply with the statute, Defendants have mounted an extraordinary attack on the authority of Congress to obtain information needed to conduct oversight of Treasury, the IRS, and the tax laws on behalf of the American people who participate in the Nation’s voluntary tax system.

Neal and Mnuchin had previously said that they expected the request for Trump’s tax returns to land in court. The dispute will likely be decided by the Supreme Court, given that either side would appeal an unfavorable ruling.

In his suit, Neal averred that Congress’ broad oversight authority easily surpasses the legal bar for obtaining the documents. In his original request, Neal said that the committee had an interest in reviewing the IRS’ auditing practices as they relate to the president’s tax return information.

Mnuchin has previously said that he would not comply with Neal’s request because it lacked a “legitimate legislative purpose” and was politically motivated. In a legal memorandum released in June, the U.S. Department of Justice said Mnuchin should not comply with the request because House Democratic lawmakers intend to publicly disclose Trump’s tax information.

Now that the battle over Trump’s tax returns has hit the court system, the process could drag out beyond the November 2020 elections.

Trump Return Litigation

The complaint can be found here.

by abizcannabis on June 25, 2019 Leave a Comment

FinCEN GTOs – Real Estate

FinCEN GTOs – Real Estate – is a warning that anyone that deals with the cannabis industry or any business where large amounts of cash are involved. Be sure you understand the disclosure rules if you are assisting anyone in the purchase of a residential apartment [even if no business use is contemplated in the targeted counties.

One of the many reforms being pushed to identify buyers and combat illicit money laundering has been the Geographic Targeting Orders (GTO) issued by the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN). Last week, FinCEN announced that they are once again updating their reporting requirements to further crack down on the flow of “dirty” money into real estate. This sixth revision of FinCEN’s GTO is effective November 17, 2018, through May 15, 2019.

The revised requirements have been made public to all parties and supersede the previous GTO. Title insurance companies now must report the identity of purchasers to FinCEN in residential real estate transactions when the:

Purchaser is buying residential real estate in New York City (as well as many other covered areas as set forth in the GTO) where the total purchase price is at least $300,000;

Purchaser is a “Legal Entity” (which is defined by the GTO as a corporation, limited liability company, partnership or other similar business entity, whether formed under the laws of a state, or of the United States or a foreign jurisdiction);

Purchase of such residential real estate is made without a bank loan or other form of external financing; and

Purchase is made, at least in part, using currency or a cashier’s check, certified check, traveler’s check, personal check, business check, money order in any form, funds transfer, or virtual currency.

FinCEN GTOs – Real Estate

FINCen renewed its targeting order on May 19. 2019 announced the renewal of its Geographic Targeting Orders (GTOs) that require U.S. title insurance companies to identify the natural persons behind shell companies used in all-cash purchases of residential real estate. The purchase amount threshold remains $300,000 for each covered metropolitan area.

GTOs continue to provide valuable data on the purchase of residential real estate by persons possibly involved in various illicit enterprises. Reissuing the GTOs will further assist in tracking illicit funds and other criminal or illicit activity, as well as inform FinCEN’s future regulatory efforts in this sector.

Today’s GTOs cover certain counties within the following major U.S. metropolitan areas:

1. The Texas counties of Bexar, Tarrant, or Dallas;

2. The Florida counties of Miami-Dade, Broward, or Palm Beach;

3. The Boroughs of Brooklyn, Queens, Bronx, Staten Island, or Manhattan in New York City, New York;

4. The California counties of San Diego, Los Angeles, San Francisco, San Mateo, or Santa Clara;

5. The City and County of Honolulu in Hawaii;

6. The Nevada county of Clark;

7. The Washington county of King;

8. The Massachusetts counties of Suffolk, or Middlesex; or

9. The Illinois county of Cook;

Transactions without bank financing that include a portion of the purchase price paid, at least in part, using currency or a cashier’s check, a certified check, a traveler’s check, a personal check, a business check, a money order in any form, a funds transfer, or virtual currency. The full text of the FinCEN GTO can be found here.

IRS-Tax

SAFE Banking Passes

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Blather – Prattle – Outsourcing

Blather – Prattle – Outsourcing

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Blather – Prattle – Outsourcing

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IRS Updates CTR Exams

IIRS Updates CTR Exams

IRS Updates CTR Exams

IRS Updates CTR Exams

IRS Updates CTR Exams

IRS Updates CTR Exams

IIRS Updates CTR Exams

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IRS – Kleptocurrency?

IRS – Kleptocurrency?

IRS – Kleptocurrency?

IRS – Kleptocurrency?

IRS – Kleptocurrency?

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Trump Return Litigation

Trump Return Litigation

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FinCEN GTOs – Real Estate

FinCEN GTOs – Real Estate

FinCEN GTOs – Real Estate

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