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

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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

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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.

 

IRS Continues To Expand Tax Relief From COVID-19

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IRS Continues To Expand Tax Relief From COVID-19

On April 9, 2020 the IRS announced additional relief for taxpayers extending deadlines to July 15, 2020 including the 2nd quarter estimated tax payment that would have been due June 15, 2020.

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.

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 And Treasury Department Guidance For The 2019 Tax Season

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

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

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

Click here for the March 21, 2020 press release issued by the IRS.

Click here for the April 9, 2020 press release issued by the IRS.

This relief is available with respect to:

  • Federal income tax payments (including payments of tax on self-employment income) due on April 15, 2020, in respect of an affected taxpayer’s 2019 taxable year, and
  • Federal estimated income tax payments (including payments of tax on self-employment income) due on April 15, 2020 and now for June 15, 2020, for an affected taxpayer’s 2020 taxable year.
  • All taxpayers that have a filing or payment deadline falling on or after April 1, 2020, and before July 15, 2020. Individuals, trusts, estates, corporations and other non-corporate tax filers qualify for the extra time.
  • All Americans who live and work abroad to file their 2019 federal income tax return and pay any tax due.

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.

2016 Unclaimed Refunds – Deadline extended to July 15, 2020

The April 9, 2020 press release also states that for 2016 tax returns, the normal April 15th deadline to claim a refund has also been extended to July 15, 2020. The law provides a three-year window of opportunity to claim a refund.  If taxpayers do not file a return within three years, the money becomes property of the U.S. Treasury. The law requires taxpayers to properly address, mail and ensure the tax return is postmarked by the July 15, 2020, date.

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 2018. 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 videoconference.

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), 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.

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

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

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

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

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

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

CARES Act Relief For Businesses

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

Employee Retention Credit

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

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

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

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

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

Paycheck Protection Program (“PPP”)

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

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

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

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

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

U.S. Senators Urging Change

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

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

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

Higher Taxes Still Remain

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

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

Reporting Of Cash Payments Still Remain

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

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

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

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

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

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

 

Update To State Of California COVID-19 Tax Relief

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Update To State Of California COVID-19 Tax Relief

FTB Coronavirus Tax Relief

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

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

Extension Of Filing And Payment Deadlines

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

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

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

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

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

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

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

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

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

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

New Guidance Issued By FTB

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

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

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

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

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

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

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

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

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

An Opportunity For Taxpayers Who Owe The FTB

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

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

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

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

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

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

What Should You Do?

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

Has Your Business Claimed Funds In The Paycheck Protection Program Under The Coronavirus Aid, Relief and Economic Security Act?

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Has Your Business Claimed Funds In The Paycheck Protection Program Under The Coronavirus Aid, Relief and Economic Security Act?

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 access of funds through banks to qualifying businesses and self-employed taxpayers to pay for payroll, insurance premiums and mortgage, rent and utility payments.  This is known as the “Paycheck Protection Program”.

Paycheck Protection Program (“PPP”)

Under this program administered by the U.S. Treasury and the U.S. Small Business Administration (SBA), 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.

Recent Guidance Issued By The U.S. Treasury

On April 6, 2020, the U.S. Treasury and the SBA released FAQs on the PPP. The FAQs clarify certain aspects of the program which hopefully will expediate the process of the PPP funds being released to businesses.  The FAQs cover:

  • Using the gross payroll approach for both loan application and forgiveness and that the employer’s share of Federal Insurance Contributions Act taxes should not be included.
  • The $100,000 salary limitation does not include health care, retirement benefits, and state and local taxes.
  • Applicants that use Professional Employer Organizations (PEOs) can provide payroll reports since they cannot produce individual entity payroll tax documents.
  • The time period for calculating payroll costs for the maximum loan amount.

What can PPP funds be used to pay?

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.

What counts as payroll costs?

  • Salary, wages, commissions, or tips (capped at $100,000 on an annualized basis for each employee);
  • Employee benefits including costs for vacation, parental, family, medical, or sick leave; allowance for separation or dismissal; payments required for the provisions of group health care benefits including insurance premiums; and payment of any retirement benefit;
  • State and local taxes assessed on compensation; and
  • For a sole proprietor or independent contractor: wages, commissions, income, or net earnings from self-employment, capped at $100,000 on an annualized basis for each employee.

What counts as non-payroll costs?

  • Interest on mortgage obligations, incurred before February 15, 2020;
  • Rent, under lease agreements in force before February 15, 2020; and
  • Utilities, for which service began before February 15, 2020.

Under what circumstances do I have to repay these PPP funds received?

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.

How soon can one apply?

Starting April 3, 2020, small businesses and sole proprietorships affected by the coronavirus pandemic can apply for loans under the PPP.  Independent contractors and self-employed individuals can apply starting April 10, 2020.  The application period ends June 30, 2020.

Where do I apply?

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 SBA lenders.

How large can my loan be?

Loans can be for up to two months of your average monthly payroll costs from the last year plus an additional 25% of that amount. That amount is subject to a $10 million cap. If you are a seasonal or new business, you will use different applicable time periods for your calculation. Payroll costs will be capped at $100,000 annualized for each employee.

How many loans can I take out under PPP?

Only one.

Are there any charges or requirements for collateral or personal guarantees?

No collateral or personal guarantees are required. Neither the government nor lenders will charge small businesses any fees.

What if I do not spend all the funds or make non-qualifying expenditures?

The amount of loan forgiveness will be reduced including if full-time headcount declines or if salaries and wages decrease.  Also, if you use the loan amount for anything other than payroll costs, mortgage interest, rent, and utilities payments over the 8 weeks after getting the loan.

How can I request loan forgiveness?

You can submit a request to the lender that is servicing the loan. The request will include documents that verify the number of full-time equivalent employees and pay rates, as well as the payments on eligible mortgage, lease, and utility obligations. You must certify that the documents are true and that you used the forgiveness amount to keep employees and make eligible mortgage interest, rent, and utility payments. The lender must make a decision on the forgiveness within 60 days.

What is my interest rate?

1% fixed rate.

When do I need to start paying interest on my loan?

All payments are deferred for 6 months; however, interest will continue to accrue over this period.

When is my loan due?

In 2 years.

Can I pay my loan earlier than 2 years?

Yes. There are no prepayment penalties or fees.

Can I still claim the Employee Retention Tax Credit?

No. An employer who receives a loan under the PPP is not eligible to also claim an employee retention tax credit under the CARES Act. The employee retention tax credit gives eligible employers whose business operations are fully or partially suspended due to the COVID-19 pandemic a credit against employment taxes equal to 50% of qualified wages (up to $10,000 in wages) for each employee.

What Should You Do?

Don’t delay in applying as the Payroll Protection Program has a cap and demand is likely to be high.

Let the 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 assist you in securing the maximum amount of financing allowed and to maximize the amount of loan forgiveness.  Also if you are involved in cannabis, check out what a cannabis tax attorney can do for you.  And if you are involved in crypto currency, check out what a bitcoin tax attorney can do for you.

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

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

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

Highlights Of The Treasury Inspector General Report 

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

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

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

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

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

Recommendations Of The Treasury Inspector General Report

TIGTA recommended the following to the IRS:

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

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

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

Higher Taxes Still Remain

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

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

Reporting Of Cash Payments Still Remain

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

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

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

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

IRS Is Ready And Motivated To Examine Cannabis Businesses

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

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

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

Cannabis Businesses Kept Out Of COVID-19 Stimulus Package

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Cannabis Businesses Kept Out Of COVID-19 Stimulus Package

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

CARES Act Relief For Businesses

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

Employee Retention Credit

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

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

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

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

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

Paycheck Protection Program (“PPP”)

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

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

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

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

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

U.S. Senators Urging Change

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

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

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

Higher Taxes Still Remain

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

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

Reporting Of Cash Payments Still Remain

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

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

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

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

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

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

Letter

State Of California Responding To COVID-19 With Tax Relief

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State Of California Responding To COVID-19 With Tax Relief

FTB Coronavirus Tax Relief

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

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

Extension Of Filing And Payment Deadlines

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

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

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

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

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

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

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

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

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

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

An Opportunity For Taxpayers Who Owe The FTB

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

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

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

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

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

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

What Should You Do?

You know that at the Law Offices Of Jeffrey B. Kahn, P.C. we are always thinking of ways that our clients can save on taxes. Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), 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.