Corporate Transparency Act Blocked Nationwide by Texas Court

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Corporate Transparency Act Blocked Nationwide by Texas Court

Requirement For Banks & Financial Institutions To Report Beneficial Ownership Information Of Entity Accountholders Put On Hold

The Federal government in its efforts to crack down on illicit finance and enhance transparency on September 29, 2022 issued a final ruling establishing a beneficial ownership information reporting requirement, pursuant to the Corporate Transparency Act (CTA). This rule will require most corporations, limited liability companies, and other entities created in or registered to do business in the United States to report information about their beneficial owners – the persons who ultimately own or control the company – to the United States Treasury Department’s Financial Crimes Enforcement Network (FinCEN).

Law Invalidated Less Than One Month Before Reporting Deadline

On December 3, 2024 Judge Amos L. Mazzant III of the US District Court for the Eastern District of Texas issued the injunction at the request of a family-run firearms and tactical gear retailer, called Texas Top Cop Shop Inc., among other co-plaintiff businesses and the Libertarian Party of Mississippi. Their lawsuit alleged that the CTA falls outside of Congress’s powers to regulate interstate and foreign commerce because it regulates incorporated entities regardless of whether they engage in commercial activity.

In issuing the Court’s opinion (Texas Top Cop Shop, Inc. v. Garland, E.D. Tex., No. 4:24-cv-00478, 12/3/24.), the Court agreed that the law’s requirements exceed Congress’s commerce authority.  “For good reason, Plaintiffs fear this flanking, quasi-Orwellian statute and its implications on our dual system of government,” Mazzant wrote.

Purpose Of Reporting

Designed to protect U.S. national security and strengthen the integrity and transparency of the U.S. financial system, FINCEN stated that this ruling will help to stop criminal actors, including oligarchs, kleptocrats, drug traffickers, human traffickers, and those who would use anonymous shell companies to hide their illicit proceeds.

“For too long, it has been far too easy for criminals, Russian oligarchs, and other bad actors to fund their illicit activity by hiding and moving money through anonymous shell companies and other corporate structures right here in the United States,” said Acting FinCEN Director Himamauli Das. “This final rule is a significant step forward in our efforts to support national security, intelligence, and law enforcement agencies in their work to curb illicit activities. The final rule will also play an important role in protecting American taxpayers and businesses who play by the rules, but are repeatedly hurt by criminals that use companies for illegal reasons.”

Reporting Companies

The CTA broadly defines a “reporting company” as any corporation, limited liability company, or other similar entity created by filing a document with the secretary of state or similar office in any state or territory or with a federally recognized Indian Tribe, or formed under the laws of a foreign country and registered to do business in the United States.

Entities Not Required To Be Reported

There are certain entities that are excepted from being reported: (1) entities in certain regulated industries that already are subject to beneficial ownership reporting, (2) publicly traded companies, (3) investment vehicles operated by investment advisors, nonprofits, and government entities, and (4) “qualified exempt entities”.  A “qualified exempt entity” is an entity that (a) employs more than 20 employees; (b) filed in the previous year a tax return demonstrating more than $5 million in gross receipts or sales; and (c) has an operating presence at a physical office within the United States.

Beneficial Owners and the Information to Report

The CTA defines a “beneficial owner” of an entity as any individual who, directly or indirectly, (1) exercises substantial control over the entity or (2) owns or controls not less than 25% equity in the entity. The rule expressly excludes certain individuals from the definition of beneficial ownership, including (1) a minor child (as long as the child’s parent’s or guardian’s information is reported); (2) an individual acting as an intermediary or agent on behalf of another; (3) a person whose control over a reporting company derives solely from their employment; (4) an individual whose only interest in a reporting company is through a right of inheritance; or (5) a creditor of a reporting company (unless they qualify as a “beneficial owner” through substantial control or equity ownership).

What Information Gets Reported

In each report to FinCEN, a reporting company must provide each beneficial owner’s name, date of birth, residential or business address, and a unique identifying number from an acceptable identification document (such as a state driver’s license or passport).

Effective Date Is January 1, 2024.

The rule is effective January 1, 2024. Reporting companies created or registered before January 1, 2024, will have one year (until January 1, 2025) to file their initial reports, while reporting companies created or registered after January 1, 2024, will have 30 days after creation or registration to file their initial reports. Once the initial report has been filed, both existing and new reporting companies will have to file updates within 30 days of a change in their beneficial ownership information.

The reporting rule is one of three rulemakings planned to implement the CTA. FinCEN will engage in additional rulemakings to: (1) establish rules for who may access beneficial ownership information, for what purposes, and what safeguards will be required to ensure that the information is secured and protected; and (2) revise FinCEN’s customer due diligence rule. In addition, FinCEN stated it continues to develop the infrastructure to administer these requirements, including the information technology system that will be used to store beneficial ownership information in accordance with the strict security and confidentiality requirements of the CTA.

FinCEN Issues Guide to Assist Small Businesses with Beneficial Ownership Reporting: The Treasury Department’s Financial Crimes Enforcement Network (FinCEN) published a Small Entity Compliance Guide https://www.fincen.gov/sites/default/files/shared/BOI_Small_Compliance_Guide.v1.1-FINAL.pdf  to assist the small business community in complying with the beneficial ownership information (BOI) reporting rule that became effective on January 1, 2024 under the Corporate Transparency Act.

Penalties for Violating CTA

The willful failure to report complete or updated beneficial ownership information to FinCEN, or the willful provision of or attempt to provide false or fraudulent beneficial ownership information may result in a civil or criminal penalties, including civil penalties of up to $500 for each day that the violation continues, or criminal penalties including imprisonment for up to two years and/or a fine BOI Ownership Information report may be held accountable for that failure. However, the CTA contains a safe harbor from such civil and criminal liability for the submission of inaccurate information if the person who submitted the report voluntarily and promptly corrects the report within 90 days.

Don’t Take The Chance And Lose Everything You Have Worked For.

Protect yourself. While the law is put on hold for now, you can expect the laws regarding customer due diligence requirements for financial institutions will also be updated to conform to the CTA as the CTA will be providing a new means for a financial institution to verify a customer’s “Know Your Customer” information.  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 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. In addition, tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. can complete or update BOI reporting for your business. Additionally, 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.

Under A Second Trump Term, How Will The U.S. Attorneys’ Office Support Or Hinder The Cannabis Industry?

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During President Trump’s 2016 campaign, he supported medical marijuana and deferred recreational use decisions to individual states. However, his first administration took a stringent approach, with then Attorney General Jeff Sessions rescinding Obama-era guidelines that limited federal interference in state-legal cannabis activities.

The Growing Trend In Legalizing Cannabis – Current Standings:

Medical marijuana is legal in 38 states and Washington DC, and soon to be 39 states with the passage of medical marijuana in Nebraska in the 2024 election

The medical use of cannabis is legal (with a doctor’s recommendation) in 38 states and Washington DC. Nebraska will soon be the 39th state to legalize it with the recent passage of the medical marijuana measure in the 2024 election. Currently, the 38 states with medical marijuana legal include Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Hawaii, Illinois, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Dakota, Utah, Vermont, Virginia, Washington and West Virginia. The medical use of cannabis is also legal in the territories of the Northern Mariana Islands, Guam and Puerto Rico.

Recreational marijuana is legal in 23 states and Washington DC

Twenty-three states and Washington DC, have legalized marijuana for recreational use — no doctor’s letter required — for adults over the age of 21. Those 23 states being Alaska, Arizona, California, Colorado, Connecticut, Delaware, Illinois, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Montana, Nevada, New Jersey, New Mexico, New York, Ohio, Oregon, Rhode Island, Vermont, Virginia and Washington and the territories of the Northern Mariana Islands and Guam.

Recreational marijuana is legal in 6 tribal nations.

Six Tribal nations have legalized marijuana for recreational use.  Those 6 tribes being the Flandreau Santee Sioux Tribe (South Dakota), Oglala Lakota Sioux Tribe (South Dakota), Suquamish Tribe (Washington state), Squaxin Island Tribe (Washington State), Eastern Band of Cherokee Indians (North Carolina) and St. Regis Mohawk Tribe (New York).

Conflict With Federal Law.

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.

What To Consider In A Second Trump Administration

During the 2024 election campaign, Trump expressed support for reclassifying marijuana from a Schedule I to a Schedule III substance under the Controlled Substances Act. He stated, “It is time to end needless arrests and incarcerations of adults for small amounts of marijuana for personal use.”  He also voiced support for marijuana industry access to the banking system and the federal cannabis rescheduling process initiated by the Biden administration. Furthermore, Trump also endorsed Florida’s Amendment 3, a ballot initiative aimed at legalizing recreational marijuana for adults 21 and older.  However, even though 55.9% of Floridians voted in favor of it (including Trump who is a Florida resident), the amendment in Florida did not pass as a 60% vote is required.

While Trump’s recent statements on cannabis suggest a shift toward reform, his administration’s past actions reflect a more stringent approach. Time will tell how the second Trump administration will handle cannabis. In the 2024 election, Republicans reclaimed a majority in the Senate, and while the political makeup of the House is still to be determined, chances are it will most likely be controlled by Republicans. As any president’s ability to unilaterally change federal marijuana laws is limited and favorable judicial intervention is unlikely, it is up to congress to launch substantial cannabis reform which under the anticipated makeup of congress is more unlikely to happen.

Trump’s Nomination Of Representative Pam Bondi for Attorney General

After former Representative Matt Gaetz withdrew her nomination as Attorney General, Trump has tapped former Florida Attorney General, Pam Bondi, to be Attorney General.  Compared to Gaetz, who has widely known pro-legalization stance on cannabis and had even vowed to “go easy” on the cannabis industry if he got the job, Bondi’s record on the issue is far less pro-reform.  For example, as Florida’s Attorney General, Bondi opposed efforts to legalize medical cannabis.  Additionally, during Trump’s first term in office, Bondi served on the President’s Commission on Combating Drug Addiction and the Opioid Crisis, which issued a report that expressed concerns about cannabis legalization.

But despite the possibility of a cannabis-friendly Department Of Justice, the cannabis industry still faces risks that non-cannabis businesses do not face.

Risk Of Losing All Bank Privileges

While states are opening their markets to marijuana, the illegality under Federal law still restricts cannabis businesses access to banking channels. On February 14, 2014, the Financial Crimes Enforcement Network (“FinCEN”) which is a division of the Department Of Treasury issued guidance (FIN-2014-G001) clarifying how financial institutions can provide services to marijuana-related businesses consistent with their Bank Secrecy Act (“BSA”) obligations, and aligned the information provided by financial institutions in BSA reports with federal and state law enforcement priorities. This FinCEN guidance issued by the Department Of Treasury was following the Cole Memo issued by the DOJ. But now that the Cole Memo has been rescinded, the FinCEN guidance is not has persuasive leading many banks to turn away cannabis businesses. For those cannabis businesses that have eluded banks with their true business activity (which such misrepresentation is also a Federal crime), those businesses run the risk of having their bank accounts shut down by the bank when the bank learns of their true business activity so it is important to secure qualified legal counsel to come up with solutions that will allow you to still conduct business and meet financial obligations.

Risk Of Getting A Big Tax Bill From IRS That You Cannot Pay

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. A cannabis business that has not properly reported its income and expenses and not engaged in the planning to minimize income taxes can face a large liability proposed by IRS reflected on a Notice Of Deficiency or tax bill.

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 and several other states, that is not enough to protect you.  It’s coming down that the biggest risk is TAXES.  Your need to protect yourself and your investment. Level the playing field and gain the upper hand by engaging the cannabis tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), the Inland Empire (Ontario and Palm Springs) and other California locations. We can come up with solutions and strategies to these risks and protect you and your business to maximize your net profits. 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, Inland Empire (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.

Under A Second Trump Term, How Will The U.S. Attorneys’ Office Support Or Hinder The Cannabis Industry?

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During President Trump’s 2016 campaign, he supported medical marijuana and deferred recreational use decisions to individual states. However, his first administration took a stringent approach, with then Attorney General Jeff Sessions rescinding Obama-era guidelines that limited federal interference in state-legal cannabis activities.

The Growing Trend In Legalizing Cannabis – Current Standings:

Medical marijuana is legal in 38 states and Washington DC, and soon to be 39 states with the passage of medical marijuana in Nebraska in the 2024 election

The medical use of cannabis is legal (with a doctor’s recommendation) in 38 states and Washington DC. Nebraska will soon be the 39th state to legalize it with the recent passage of the medical marijuana measure in the 2024 election. Currently, the 38 states with medical marijuana legal include Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Hawaii, Illinois, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Dakota, Utah, Vermont, Virginia, Washington and West Virginia. The medical use of cannabis is also legal in the territories of the Northern Mariana Islands, Guam and Puerto Rico.

Recreational marijuana is legal in 23 states and Washington DC

Twenty-three states and Washington DC, have legalized marijuana for recreational use — no doctor’s letter required — for adults over the age of 21. Those 23 states being Alaska, Arizona, California, Colorado, Connecticut, Delaware, Illinois, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Montana, Nevada, New Jersey, New Mexico, New York, Ohio, Oregon, Rhode Island, Vermont, Virginia and Washington and the territories of the Northern Mariana Islands and Guam.

Recreational marijuana is legal in 6 tribal nations.

Six Tribal nations have legalized marijuana for recreational use.  Those 6 tribes being the Flandreau Santee Sioux Tribe (South Dakota), Oglala Lakota Sioux Tribe (South Dakota), Suquamish Tribe (Washington state), Squaxin Island Tribe (Washington State), Eastern Band of Cherokee Indians (North Carolina) and St. Regis Mohawk Tribe (New York).

Conflict With Federal Law.

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.

What To Consider In A Second Trump Administration

During the 2024 election campaign, Trump expressed support for reclassifying marijuana from a Schedule I to a Schedule III substance under the Controlled Substances Act. He stated, “It is time to end needless arrests and incarcerations of adults for small amounts of marijuana for personal use.”  He also voiced support for marijuana industry access to the banking system and the federal cannabis rescheduling process initiated by the Biden administration. Furthermore, Trump also endorsed Florida’s Amendment 3, a ballot initiative aimed at legalizing recreational marijuana for adults 21 and older.  However, even though 55.9% of Floridians voted in favor of it (including Trump who is a Florida resident), the amendment in Florida did not pass as a 60% vote is required.

While Trump’s recent statements on cannabis suggest a shift toward reform, his administration’s past actions reflect a more stringent approach. Time will tell how the second Trump administration will handle cannabis. In the 2024 election, Republicans reclaimed a majority in the Senate, and while the political makeup of the House is still to be determined, chances are it will most likely be controlled by Republicans. As any president’s ability to unilaterally change federal marijuana laws is limited and favorable judicial intervention is unlikely, it is up to congress to launch substantial cannabis reform which under the anticipated makeup of congress is more unlikely to happen.

Trump’s Nomination Of Representative Matt Gaetz for Attorney General

On November 13, 2024 Trump nominated Representative Matt Gaetz for Attorney General. If Gaetz gets confirmed by the Senate as Attorney General the state-level cannabis marketplace may not be impeded under the Trump administration, which would be a massive change from Trump’s first term. In addition, this could be positive for the ongoing Biden administration-led marijuana rescheduling effort that Trump has endorsed. Gaetz has a history of voting in favor of or speaking up in favor of cannabis becoming legal. Gaetz helped sponsor the first medical marijuana law passed by the Florida Legislature in 2014, which permitted the use of a noneuphoric, low-THC cannabis to treat conditions such as epilepsy. In addition, Gaetz was one of three Republican members of the House to approve a Democratic-led bill to federally legalize marijuana titled the Marijuana Opportunity Reinvestment and Expungement (MORE) Act in 2022. In 2023, Gaetz proposed an amendment in the National Defense Authorization Act which would end cannabis testing for members of the military — both when they are enlisting and accepting a commission. Furthermore, last year Gaetz also stated that he’s concerned that if the federal government doesn’t “go further” than simply moving marijuana to a lower drug schedule, large pharmaceutical companies might be able to overtake the cannabis industry. While Gaetz voted in favor of a federal legalization bill in 2022, he said in August 2024 that cannabis reform should be enacted statutorily instead of through an amendment to each States’ constitution so the Federal government can more easily adjust the law in the future.

But despite the possibility of a cannabis-friendly Department Of Justice, the cannabis industry still faces risks that non-cannabis businesses do not face.

Risk Of Losing All Bank Privileges

While states are opening their markets to marijuana, the illegality under Federal law still restricts cannabis businesses access to banking channels. On February 14, 2014, the Financial Crimes Enforcement Network (“FinCEN”) which is a division of the Department Of Treasury issued guidance (FIN-2014-G001) clarifying how financial institutions can provide services to marijuana-related businesses consistent with their Bank Secrecy Act (“BSA”) obligations, and aligned the information provided by financial institutions in BSA reports with federal and state law enforcement priorities. This FinCEN guidance issued by the Department Of Treasury was following the Cole Memo issued by the DOJ. But now that the Cole Memo has been rescinded, the FinCEN guidance is not has persuasive leading many banks to turn away cannabis businesses. For those cannabis businesses that have eluded banks with their true business activity (which such misrepresentation is also a Federal crime), those businesses run the risk of having their bank accounts shut down by the bank when the bank learns of their true business activity so it is important to secure qualified legal counsel to come up with solutions that will allow you to still conduct business and meet financial obligations.

Risk Of Getting A Big Tax Bill From IRS That You Cannot Pay

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. A cannabis business that has not properly reported its income and expenses and not engaged in the planning to minimize income taxes can face a large liability proposed by IRS reflected on a Notice Of Deficiency or tax bill.

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 and several other states, that is not enough to protect you.  It’s coming down that the biggest risk is TAXES.  Your need to protect yourself and your investment. Level the playing field and gain the upper hand by engaging the cannabis tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), the Inland Empire (Ontario and Palm Springs) and other California locations. We can come up with solutions and strategies to these risks and protect you and your business to maximize your net profits. 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, Inland Empire (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.

San Francisco Voters Approve A Significant Overhaul To The City’s Business Tax Regime

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San Francisco Voters Approve A Significant Overhaul To The City’s Business Tax Regime

On November 5, 2024 voters in San Francisco approved Proposition M (“Prop. M”) which aims to exempt more small businesses from taxes and fees, while reducing taxes on some of the city’s largest companies.

Currently, San Francisco taxes businesses operating in the city based on the number of employees working in San Francisco.  Such method of calculation creates a disincentive to bring employees back from remote work back into the office. Prop. M’s adjustments are meant to change that and help revitalize downtown San Francisco.

What is the impact of Prop. M?

Prop. M, cuts taxes on several of the city’s largest employers and increases the number of small businesses exempt from business taxes and certain licensing fees. It also overrides scheduled tax increases for small businesses until at least 2027.

More importantly, Prop. M makes major changes to how business taxes are calculated for individual companies, such as shifting from a tax formula focused on payroll to one on “gross receipts” or sales in San Francisco. This new method of calculation is commonly used by cities all over the country in determining local taxes on businesses and is referred to as a “gross receipts tax”.

In addition to the gross receipts tax applicable to all businesses, an annual additional graduated tax on the gross receipts of ride-hailing companies such as Uber and Lyft and companies that offer rides in driverless cars such as Waymo, will be levied to help fund the city’s transit system.

Prop M. also mandates other changes such as discontinuing the charge of fees to businesses that occupy sidewalks with tables and chairs and reducing the number of business tax classifications from 14 to 7.

Proponents of Prop M. claim that more employees will likely return to the office and work remotely less frequently, because companies would not face a higher tax burden for having employees work in San Francisco. Also, companies might be less likely to leave San Francisco because, even if they moved their headquarters out of the city, their sales would still get taxed.

What should you do?

Whether it is San Francisco, a State or the Federal government, new administrations and changing times usually result in changes to the tax laws.  Tax changes with their nuances and complexities can be difficult to navigate alone. At the Law Offices Of Jeffrey B. Kahn, P.C. our tax attorneys are always thinking of ways that our clients can save on taxes, trusts and estates planning, and probate matters. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), San Francisco and elsewhere in California are highly skilled in handling tax and probate 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 our cannabis tax attorney can do for you. Additionally, if you are involved in cryptocurrency, check out what a bitcoin tax attorney can do for you.

How Will The Second Trump Administration Handle Cannabis?

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During President Trump’s 2016 campaign, he supported medical marijuana and deferred recreational use decisions to individual states. However, his first administration took a stringent approach, with then Attorney General Jeff Sessions rescinding Obama-era guidelines that limited federal interference in state-legal cannabis activities.

The Growing Trend In Legalizing Cannabis – Current Standings:

Medical marijuana is legal in 38 states and Washington DC, and soon to be 39 states with the passage of medical marijuana in Nebraska in the 2024 election

The medical use of cannabis is legal (with a doctor’s recommendation) in 38 states and Washington DC. Nebraska will soon be the 39th state to legalize it with the recent passage of the medical marijuana measure in the 2024 election. Currently, the 38 states with medical marijuana legal include Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Hawaii, Illinois, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Dakota, Utah, Vermont, Virginia, Washington and West Virginia. The medical use of cannabis is also legal in the territories of the Northern Mariana Islands, Guam and Puerto Rico.

Recreational marijuana is legal in 23 states and Washington DC

Twenty-three states and Washington DC, have legalized marijuana for recreational use — no doctor’s letter required — for adults over the age of 21. Those 23 states being Alaska, Arizona, California, Colorado, Connecticut, Delaware, Illinois, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Montana, Nevada, New Jersey, New Mexico, New York, Ohio, Oregon, Rhode Island, Vermont, Virginia and Washington and the territories of the Northern Mariana Islands and Guam.

Recreational marijuana is legal in 6 tribal nations.

Six Tribal nations have legalized marijuana for recreational use.  Those 6 tribes being the Flandreau Santee Sioux Tribe (South Dakota), Oglala Lakota Sioux Tribe (South Dakota), Suquamish Tribe (Washington state), Squaxin Island Tribe (Washington State), Eastern Band of Cherokee Indians (North Carolina) and St. Regis Mohawk Tribe (New York).

Conflict With Federal Law.

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.

What To Consider In A Second Trump Administration

During the 2024 election campaign, Trump expressed support for reclassifying marijuana from a Schedule I to a Schedule III substance under the Controlled Substances Act. He stated, “It is time to end needless arrests and incarcerations of adults for small amounts of marijuana for personal use.”  He also voiced support for marijuana industry access to the banking system and the federal cannabis rescheduling process initiated by the Biden administration. Furthermore, Trump also endorsed Florida’s Amendment 3, a ballot initiative aimed at legalizing recreational marijuana for adults 21 and older.  However, even though 55.9% of Floridians voted in favor of it (including Trump who is a Florida resident), the amendment in Florida did not pass as a 60% vote is required.

While Trump’s recent statements on cannabis suggest a shift toward reform, his administration’s past actions reflect a more stringent approach. Time will tell how the second Trump administration will handle cannabis. In the 2024 election, Republicans reclaimed a majority in the Senate, and while the political makeup of the House is still to be determined, chances are it will most likely be controlled by Republicans. As any president’s ability to unilaterally change federal marijuana laws is limited and favorable judicial intervention is unlikely, it is up to congress to launch substantial cannabis reform which under the anticipated makeup of congress is more unlikely to happen.

Higher Taxes Still Remain

While the developments in the states listed above are favorable for cannabis business, it still remains to be seen whether the Federal government will respond favorably and when favorable changes will be made to the Internal Revenue Code which treats businesses in the marijuana industry differently resulting in such business paying at least 3-times as much in taxes as ordinary businesses.

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

Reporting Of Cash Payments Still Remain

The Bank Secrecy Act of 1970 (“BSA”) requires financial institutions in the United States to assist U.S. government agencies to detect and prevent money laundering. Specifically, the act requires financial institutions to keep records of cash purchases of negotiable instruments, and file reports of cash purchases of these negotiable instruments of more than $10,000 (daily aggregate amount), and to report suspicious activity that might signify money laundering, tax evasion, or other criminal activities. The BSA requires any business receiving one or more related cash payments totaling more than $10,000 to file IRS Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business.

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

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

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

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

How Did Cannabis Fare In The November 2024 Elections?

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The November 2024 Elections gave voters in 4 states—Florida, Nebraska, North Dakota, and South Dakota the opportunity to decide on whether they want to legalize recreational or medical/adult-use marijuana.

Here are the results ….

Florida – FAILED FOR RECREATIONAL/ADULT USE.  Although 55.9% voted for such constitutional amendment, it nevertheless failed because Florida requires a 60% vote for a constitutional amendment to pass. However, Florida remains legal for medical marijuana.

Nebraska – PASSED FOR MEDICAL CANNABIS. Also, a measure to consider a statute that would legalize the possession, manufacture, distribution, delivery and dispensing of cannabis for medical purposes by registered private entities passed. The statute also would establish the Nebraska Medical Cannabis Commission to regulate the industry.

North Dakota – FAILED FOR RECREATIONAL/ADULT USE. However, North Dakota remains legal for medical marijuana.

South Dakota – FAILED FOR RECREATIONAL/ADULT USE. However, South Dakota remains legal for medical marijuana.

And on the psychedelics front …

Massachusetts – Voters narrowly rejected a measure to legalize medical psychedelics, with 57% opposed and 43% in favor. The initiative sought to allow the medical use of substances such as psilocybin, psilocin, DMT, ibogaine, and mescaline for patients 21 and older.  So it is still only the states of Colorado and Oregon where psychedelics are legal.

The Growing Trend In Legalizing Cannabis – Current Standings:

Medical marijuana is legal in 38 states and Washington DC, and soon to be 39 states with the passage of medical marijuana in Nebraska in the 2024 election

The medical use of cannabis is legal (with a doctor’s recommendation) in 38 states and Washington DC. Nebraska will soon be the 39th state to legalize it with the recent passage of the medical marijuana measure in the 2024 election. Currently, the 38 states with medical marijuana legal include Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Hawaii, Illinois, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Dakota, Utah, Vermont, Virginia, Washington and West Virginia. The medical use of cannabis is also legal in the territories of the Northern Mariana Islands, Guam and Puerto Rico.

Recreational marijuana is legal in 23 states and Washington DC

Twenty-three states and Washington DC, have legalized marijuana for recreational use — no doctor’s letter required — for adults over the age of 21. Those 23 states being Alaska, Arizona, California, Colorado, Connecticut, Delaware, Illinois, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Montana, Nevada, New Jersey, New Mexico, New York, Ohio, Oregon, Rhode Island, Vermont, Virginia and Washington and the territories of the Northern Mariana Islands and Guam.

Recreational marijuana is legal in 6 tribal nations.

Six Tribal nations have legalized marijuana for recreational use.  Those 6 tribes being the Flandreau Santee Sioux Tribe (South Dakota), Oglala Lakota Sioux Tribe (South Dakota), Suquamish Tribe (Washington state), Squaxin Island Tribe (Washington State), Eastern Band of Cherokee Indians (North Carolina) and St. Regis Mohawk Tribe (New York).

Conflict With Federal Law.

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.

Higher Taxes Still Remain

While the developments listed above are favorable for cannabis business, it still remains to be seen whether the Federal government will respond favorably and when favorable changes will be made to the Internal Revenue Code which treats businesses in the marijuana industry differently resulting in such business paying at least 3-times as much in taxes as ordinary businesses.

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

Reporting Of Cash Payments Still Remain

The Bank Secrecy Act of 1970 (“BSA”) requires financial institutions in the United States to assist U.S. government agencies to detect and prevent money laundering. Specifically, the act requires financial institutions to keep records of cash purchases of negotiable instruments, and file reports of cash purchases of these negotiable instruments of more than $10,000 (daily aggregate amount), and to report suspicious activity that might signify money laundering, tax evasion, or other criminal activities. The BSA requires any business receiving one or more related cash payments totaling more than $10,000 to file IRS Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business.

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

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

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

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

How Can Estate Plan Documents Be Modified For An Incapacitated Spouse?

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How Can Estate Plan Documents Be Modified For An Incapacitated Spouse?

Bush Estate Tax Cuts expire December 31, 2025 – Here is what you need to know.

In 2001 and 2003 under President Bush temporary tax cuts were enacted through through two pieces of legislation: the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) and the Jobs and Growth Tax Relief Reconciliation Act (JGTRRA). Both measures were renewed in 2012 and 2017. Some of these tax cuts that have been enacted over the past 20 plus years are set to expire December 31, 2025, such as the Estate and Gift provision from the Tax Cuts and Jobs Act (TCJA) of 2017.

Estate and gift taxes – current law

The estate and gift provision in the TCJA of 2017 had a major impact on many people who may have a taxable estate in the future. The TCJA doubled the federal lifetime gift tax exemption amount, from $5.49 million in 2017 to $11.18 million in 2018 per individual. Under the TCJA, this higher exemption amount was then indexed for inflation in each subsequent each year.

In 2024, each individual has a combined federal estate and gift tax exemption of $13,610,000 (less any prior gifts made during life). This means that for federal tax purposes, in 2024 an individual can make lifetime gifts totaling up to $13,610,000 to anyone or transfer at death up to $13,610,000 (less any gifts made during life) to anyone without triggering the imposition of the federal estate and/or gift taxes. Married couples have a combined exemption, allowing them to make gifts during their lifetimes totaling $27,220,000. Any gifts during life or transfers at death with a value in excess of the available exemption amount will be subject to a federal estate and/or gift tax at a rate of 40%.

Estate and gift taxes – consequence of expiration of current law

After December 31, 2025 exemptions from estate and gift taxes will revert to pre-TCJA levels of around $5 million, adjusted for inflation. The lifetime gift and estate tax exemption, which was more than doubled by the 2017 tax reform bill, will go up with inflation in January 2025, then go down to near-2017 levels in January 2026 unless and until Congress steps in. If no action is taken by Congress by the end of 2025, then under the current law, on January 1, 2026, the federal lifetime exemption amount will be reduced to approximately one-half of the current value. Based on the rate of inflation, the exemption as of January 1, 2026 will be approximately $7 million per person.

We recommend that you review your assets, income and living expenses, then project those numbers out for your expected lifetime. Any excess assets remaining after your projected lifetime expenses is what you should consider to include in a revised estate plan that will not be burdened by a decrease in the estate and gift tax exemption.  Not taking full advantage of the gift tax exemption before it drops in two years could result in a much smaller estate for your heirs.

Leverage 2024 gifting limits

Based on the 2024 gifting limits a direct gift of cash, securities or other assets with a value up to the lifetime exemption is a simple was to gift money or part of inheritance. Furthermore, you can use the annual gift tax exclusion — $18,000 in 2024, $36,000 for couples — to make yearly gifts to as many people as you like. For example, you can make a payment directly to a school to cover a child’s or grandchild’s tuition, or to a medical provider for health expenses, without incurring taxes. Neither “free” nor annual exclusion gifts count toward your lifetime gifting limit, and these rules are not slated to change in 2026.

Family Limited Partnerships or LLC’s

For estates that have substantial real estate holdings, it is beneficial to have such real estate owned by a limited liability company (“LLC”) and then all of the LLC interests owned by a Family Limited Partnership (“FLP”).  As the owner of an FLP, you can then make gifts of limited partner interests in the FLP to family members at gift tax values that are discounted for lack of marketability and minority interests.  These discounts essentially provide a great mechanism by which you can leverage your gift tax exemption to reduce your taxable estate.  As the general partner of the FLP, you still control the management of the LLC’s.

Irrevocable Trusts

Rather than gifting cash or assets, alternatively, an irrevocable trust permits withdrawals based upon a schedule and conditions that you determine. This allows you to maintain a level of control over how and when the beneficiaries will receive distributions. When choosing which assets to gift or place in a trust it is important to look at what assets or gifts you expect will keep growing. When you gift assets using your lifetime gift tax exemption, the assets are transferred at today’s value, and there’s no tax to the beneficiaries. You can gift these assets using your lifetime gift tax exemption, allow heirs to have the current benefit and the gift or asset may experience appreciation in future years. It is important to have a skilled trusts and estates attorney draft documents, such as trust, so there are no issues with your estate.

How Can You Modify Estate Plan Documents For An Incapacitated Spouse?

If you have an incapacitated spouse who has not done any estate planning including not having executed a will or a revocable living trust or his or her documents are outdated, getting his or her estate in order is extremely important. In California, there is a special law available in regard to setting up an estate plan for an incapacitated spouse. Under California Probate Code §3100, a petition can be filed with the Courts to authorize a particular transaction involving spouse or domestic partner who lacks legal capacity, of unsound mind and unable to sign a power of attorney and has no conservator. This proceeding may be brought to authorize a particular transaction when both spouses or domestic partners have conservators, as well as when one has capacity and the other does not, or does not have a conservator. For example, this probate tool can be used if a husband and wife have all their assets as community property and they want to make gifts to their children and grandchildren to reduce their taxable estates, but one spouse lacks capacity (i.e. dementia) to make financial or testamentary decisions.

The effectiveness of a California Probate Code §3100 petition depends on the character of the subject assets being community property.  If a proposed transaction involves mixed community and separate property, then for good cause the court may still include that separate property in the transaction. If some of the incapacitated spouse’s assets are exclusively his or her own separate property alone — such as, bank accounts from before their marriage or real property assets acquired as an inheritance during their marriage — then this approach probably will not work, unless the court is willing to be flexible and to see the bigger estate picture which is mainly community property assets.

With any separate property assets, commencing a conservatorship court proceeding may be necessary.  A conservatorship must be opened in order to then make a substituted judgment petition asking the court to authorize estate planning. The California Probate Code §3100 petition and the court conservatorship petition are court proceedings that each require the following:  (1) a determination of incapacity with respect to spouse with diminished capacity; (2) notification to the relatives within the 2nd degree of the spouse with diminished capacity regarding the hearing; (3) representation of the interests of the spouse with diminished capacity; and (4) service of a citation to appear at the court hearing on the spouse with diminished capacity.

Under California Probate Code §3100, the community property will be transferred to the well spouse as sole and separate property and then with the complete ownership of the assets, the well spouse can then engage in estate planning for the couple’s best interests.

What Should You Do?

When it comes to being ready for changes in the tax laws – two years may seem like a lot of time to adjust your estate plans, however, unless you’re simply making large cash gifts, developing a new plan will involve detailed conversations and analysis. Whether your existing estate plan was created recently or a while ago having a conversation with your estate attorney now can help you make better-educated decisions about your family’s future. Furthermore, drafting of documents and trusts can be done by a professional tax and estate attorney who can guide you through the complexities, nuances, and changes in estate and gift tax law.

That is why it is worth reaching out to a Trusts and Estates and/or Probate Attorney such as the at the Law Offices Of Jeffrey B. Kahn, P.C. We are always thinking of ways that our clients can save on taxes, trusts and estates planning, and probate matters. Whether or not a will exists, the expertise of a skilled lawyer at the Law Offices Of Jeffrey B. Kahn, P.C. is needed to help protect the interests of the parties involved. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), Los Angeles and elsewhere in California are highly skilled in handling tax and probate 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 our cannabis tax attorney can do for you. Additionally, if you are involved in cryptocurrency, check out what a bitcoin tax attorney can do for you.

How Can Estate Plan Documents Be Modified For An Incapacitated Person?

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How Can Estate Plan Documents Be Modified For An Incapacitated Person?

Bush Estate Tax Cuts expire December 31, 2025 – Here is what you need to know.

In 2001 and 2003 under President Bush temporary tax cuts were enacted through through two pieces of legislation: the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) and the Jobs and Growth Tax Relief Reconciliation Act (JGTRRA). Both measures were renewed in 2012 and 2017. Some of these tax cuts that have been enacted over the past 20 plus years are set to expire December 31, 2025, such as the Estate and Gift provision from the Tax Cuts and Jobs Act (TCJA) of 2017.

Estate and gift taxes – current law

The estate and gift provision in the TCJA of 2017 had a major impact on many people who may have a taxable estate in the future. The TCJA doubled the federal lifetime gift tax exemption amount, from $5.49 million in 2017 to $11.18 million in 2018 per individual. Under the TCJA, this higher exemption amount was then indexed for inflation in each subsequent each year.

In 2024, each individual has a combined federal estate and gift tax exemption of $13,610,000 (less any prior gifts made during life). This means that for federal tax purposes, in 2024 an individual can make lifetime gifts totaling up to $13,610,000 to anyone or transfer at death up to $13,610,000 (less any gifts made during life) to anyone without triggering the imposition of the federal estate and/or gift taxes. Married couples have a combined exemption, allowing them to make gifts during their lifetimes totaling $27,220,000. Any gifts during life or transfers at death with a value in excess of the available exemption amount will be subject to a federal estate and/or gift tax at a rate of 40%.

Estate and gift taxes – consequence of expiration of current law

After December 31, 2025 exemptions from estate and gift taxes will revert to pre-TCJA levels of around $5 million, adjusted for inflation. The lifetime gift and estate tax exemption, which was more than doubled by the 2017 tax reform bill, will go up with inflation in January 2025, then go down to near-2017 levels in January 2026 unless and until Congress steps in. If no action is taken by Congress by the end of 2025, then under the current law, on January 1, 2026, the federal lifetime exemption amount will be reduced to approximately one-half of the current value. Based on the rate of inflation, the exemption as of January 1, 2026 will be approximately $7 million per person.

We recommend that you review your assets, income and living expenses, then project those numbers out for your expected lifetime. Any excess assets remaining after your projected lifetime expenses is what you should consider to include in a revised estate plan that will not be burdened by a decrease in the estate and gift tax exemption.  Not taking full advantage of the gift tax exemption before it drops in two years could result in a much smaller estate for your heirs.

Leverage 2024 gifting limits

Based on the 2024 gifting limits a direct gift of cash, securities or other assets with a value up to the lifetime exemption is a simple was to gift money or part of inheritance. Furthermore, you can use the annual gift tax exclusion — $18,000 in 2024, $36,000 for couples — to make yearly gifts to as many people as you like. For example, you can make a payment directly to a school to cover a child’s or grandchild’s tuition, or to a medical provider for health expenses, without incurring taxes. Neither “free” nor annual exclusion gifts count toward your lifetime gifting limit, and these rules are not slated to change in 2026.

Family Limited Partnerships or LLC’s

For estates that have substantial real estate holdings, it is beneficial to have such real estate owned by a limited liability company (“LLC”) and then all of the LLC interests owned by a Family Limited Partnership (“FLP”).  As the owner of an FLP, you can then make gifts of limited partner interests in the FLP to family members at gift tax values that are discounted for lack of marketability and minority interests.  These discounts essentially provide a great mechanism by which you can leverage your gift tax exemption to reduce your taxable estate.  As the general partner of the FLP, you still control the management of the LLC’s.

Irrevocable Trusts

Rather than gifting cash or assets, alternatively, an irrevocable trust permits withdrawals based upon a schedule and conditions that you determine. This allows you to maintain a level of control over how and when the beneficiaries will receive distributions. When choosing which assets to gift or place in a trust it is important to look at what assets or gifts you expect will keep growing. When you gift assets using your lifetime gift tax exemption, the assets are transferred at today’s value, and there’s no tax to the beneficiaries. You can gift these assets using your lifetime gift tax exemption, allow heirs to have the current benefit and the gift or asset may experience appreciation in future years. It is important to have a skilled trusts and estates attorney draft documents, such as trust, so there are no issues with your estate.

How Can You Modify Estate Plan Documents For An Incapacitated Person?

If you have an incapacitated parent who has not done any estate planning including not having executed a will or a revocable living trust or his or her documents are outdated, getting his or her estate in order is extremely important. In California, there is a special law available in regard to setting up an estate plan for an incapacitated parent. Under California Probate Code §2580, the Courts have the power to create a “Substituted Judgment”.  Under such law, an interested party may file a petition to take a proposed action to: (1) benefit the conservatee or the estate, (2) minimize taxes or expenses of administration of the conservatorship estate or of the estate upon the death of the conservatee, or (3) make gifts to likely donees if the conservatee had capacity. Using this law could help avoid probate and save heirs on estate taxes when one’s incapacitated parent dies.

There are many factors for the Court to consider when determining whether to approve a petition for substituted judgment.  California Probate Code §2583 lists some factors, but the Court may consider other factors not listed in the Probate Code.  Some of these factors include whether the conservatee has capacity to carry out the proposed transaction, the wishes of the conservatee, prior estate planning documents, changes in the law that the conservatee may have considered in making changes to his estate plan, and the likelihood that the conservatee would have taken the proposed action.  The petition has to address all of the relevant factors listed in the Probate Code and any others that it is believed the court may consider. Furthermore, any trust created under a substituted judgment order is subject to the California Rules of Court that govern court created trusts. These rules include the trustee obtaining a bond, filing accountings with the court just like in a conservatorship of the estate, and requiring court approval of any modification or amendment.

What Should You Do?

When it comes to being ready for changes in the tax laws – two years may seem like a lot of time to adjust an estate plans, however, unless you’re simply making large cash gifts, developing a new plan will involve detailed conversations and analysis. Whether your existing estate plan was created recently or a while ago having a conversation with your estate attorney now can help you make better-educated decisions about your family’s future. Furthermore, drafting of documents and trusts can be done by a professional tax and estate attorney who can guide you through the complexities, nuances, and changes in estate and gift tax law.

That is why it is worth reaching out to a Trusts and Estates and/or Probate Attorney such as the at the Law Offices Of Jeffrey B. Kahn, P.C. We are always thinking of ways that our clients can save on taxes, trusts and estates planning, and probate matters. Whether or not a will exists, the expertise of a skilled lawyer at the Law Offices Of Jeffrey B. Kahn, P.C. is needed to help protect the interests of the parties involved. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), Los Angeles and elsewhere in California are highly skilled in handling tax and probate 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 our cannabis tax attorney can do for you. Additionally, if you are involved in cryptocurrency, check out what a bitcoin tax attorney can do for you.

It’s Time to Review Your Estate Plan Given Uncertainty In The Tax Law.

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It’s Time to Review Your Estate Plan Given Uncertainty In The Tax Law.

Bush Estate Tax Cuts expire December 31, 2025 – Here is what you need to know.

In 2001 and 2003 under President Bush temporary tax cuts were enacted through through two pieces of legislation: the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) and the Jobs and Growth Tax Relief Reconciliation Act (JGTRRA). Both measures were renewed in 2012 and 2017. Some of these tax cuts that have been enacted over the past 20 plus years are set to expire December 31, 2025, such as the Estate and Gift provision from the Tax Cuts and Jobs Act (TCJA) of 2017.

Estate and gift taxes – current law

The estate and gift provision in the TCJA of 2017 had a major impact on many people who may have a taxable estate in the future. The TCJA doubled the federal lifetime gift tax exemption amount, from $5.49 million in 2017 to $11.18 million in 2018 per individual. Under the TCJA, this higher exemption amount was then indexed for inflation in each subsequent each year.

In 2024, each individual has a combined federal estate and gift tax exemption of $13,610,000 (less any prior gifts made during life). This means that for federal tax purposes, in 2024 an individual can make lifetime gifts totaling up to $13,610,000 to anyone or transfer at death up to $13,610,000 (less any gifts made during life) to anyone without triggering the imposition of the federal estate and/or gift taxes. Married couples have a combined exemption, allowing them to make gifts during their lifetimes totaling $27,220,000. Any gifts during life or transfers at death with a value in excess of the available exemption amount will be subject to a federal estate and/or gift tax at a rate of 40%.

Estate and gift taxes – consequence of expiration of current law

After December 31, 2025 exemptions from estate and gift taxes will revert to pre-TCJA levels of around $5 million, adjusted for inflation. The lifetime gift and estate tax exemption, which was more than doubled by the 2017 tax reform bill, will go up with inflation in January 2025, then go down to near-2017 levels in January 2026 unless and until Congress steps in. If no action is taken by Congress by the end of 2025, then under the current law, on January 1, 2026, the federal lifetime exemption amount will be reduced to approximately one-half of the current value. Based on the rate of inflation, the exemption as of January 1, 2026 will be approximately $7 million per person.

We recommend that you review your assets, income and living expenses, then project those numbers out for your expected lifetime. Any excess assets remaining after your projected lifetime expenses is what you should consider to include in a revised estate plan that will not be burdened by a decrease in the estate and gift tax exemption.  Not taking full advantage of the gift tax exemption before it drops in two years could result in a much smaller estate for your heirs.

Leverage 2024 gifting limits

Based on the 2024 gifting limits a direct gift of cash, securities or other assets with a value up to the lifetime exemption is a simple was to gift money or part of inheritance. Furthermore, you can use the annual gift tax exclusion — $18,000 in 2024, $36,000 for couples — to make yearly gifts to as many people as you like. For example, you can make a payment directly to a school to cover a child’s or grandchild’s tuition, or to a medical provider for health expenses, without incurring taxes. Neither “free” nor annual exclusion gifts count toward your lifetime gifting limit, and these rules are not slated to change in 2026.

Family Limited Partnerships or LLC’s

For estates that have substantial real estate holdings, it is beneficial to have such real estate owned by a limited liability company (“LLC”) and then all of the LLC interests owned by a Family Limited Partnership (“FLP”).  As the owner of an FLP, you can then make gifts of limited partner interests in the FLP to family members at gift tax values that are discounted for lack of marketability and minority interests.  These discounts essentially provide a great mechanism by which you can leverage your gift tax exemption to reduce your taxable estate.  As the general partner of the FLP, you still control the management of the LLC’s.

Irrevocable Trusts

Rather than gifting cash or assets, alternatively, an irrevocable trust permits withdrawals based upon a schedule and conditions that you determine. This allows you to maintain a level of control over how and when the beneficiaries will receive distributions. When choosing which assets to gift or place in a trust it is important to look at what assets or gifts you expect will keep growing. When you gift assets using your lifetime gift tax exemption, the assets are transferred at today’s value, and there’s no tax to the beneficiaries. You can gift these assets using your lifetime gift tax exemption, allow heirs to have the current benefit and the gift or asset may experience appreciation in future years. It is important to have a skilled trusts and estates attorney draft documents, such as trust, so there are no issues with your estate.

What Should You Do?

Two years may seem like a lot of time to adjust your estate plans, however, unless you’re simply making large cash gifts, developing a new plan will involve detailed conversations and analysis. Whether your existing estate plan was created recently or a while ago having a conversation with your estate attorney now can help you make better-educated decisions about your family’s future. Furthermore, drafting of documents and trusts can be done by a professional tax and estate attorney who can guide you through the complexities, nuances, and changes in estate and gift tax law.

That is why it is worth reaching out to a Trusts and Estates and/or Probate Attorney such as the at the Law Offices Of Jeffrey B. Kahn, P.C. We are always thinking of ways that our clients can save on taxes, trusts and estates planning, and probate matters. Whether or not a will exists, the expertise of a skilled lawyer at the Law Offices Of Jeffrey B. Kahn, P.C. is needed to help protect the interests of the parties involved. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), Los Angeles and elsewhere in California are highly skilled in handling tax and probate 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 our cannabis tax attorney can do for you. Additionally, if you are involved in cryptocurrency, check out what a bitcoin tax attorney can do for you.

IRS provides tax relief for Alaska flood victims in Juneau.

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IRS provides tax relief for Alaska flood victims in Juneau.

On October 25, 2024 the Internal Revenue Service (IRS) announced tax relief for individuals and businesses in the Juneau area of Alaska, affected by flooding that began on August 5, 2024. These taxpayers now have until May 1, 2025, to file various federal individual and business tax returns and make tax payments.

The tax relief postpones various tax filing and payment deadlines that occurred from August 5, 2024, through May 1, 2025 (postponement period). As a result, affected individuals and businesses will have until May 1, 2025, to file returns and pay any taxes that were originally due during this period.

This means, for example, that the May 1, 2025, deadline will now apply to:

  • Any individual or business that has a 2024 return normally due during March or April 2025.
  • Any individual, business or tax-exempt organization that has a valid extension to file their 2023 federal return. However, that payments on these returns are not eligible for the extra time because they were due last spring before the flooding occurred.
  • 2024 quarterly estimated income tax payments normally due on September 16, 2024, January 15, 2025, and 2025 estimated tax payments normally due on April 15, 2025.
  • Quarterly payroll and excise tax returns normally due on October 31, 2024, and January 31, 2025 and April 30, 2025.

In addition, penalties for failing to make payroll and excise tax deposits due on or after August 5, 2024, and before August 20, 2024, will be abated, as long as the deposits were made by August 20, 2024.

Other Areas Having Extended Deadlines:

The IRS announced (Kentucky) announced (West Virginia) on May 31, 2024 tax relief for individuals and businesses affected by severe storms, straight-line winds, tornadoes, flooding, landslides and mudslides that began on April 2, 2024 in Kentucky and West Virginia now have until November 1, 2024, to file various federal individual and business tax returns and make tax payments.

The IRS announced on August 12, 2024 tax relief for individuals and businesses in 25 Minnesota counties affected by severe storms and flooding that began on June 16, 2024 now have until February 3, 2025, to file various federal individual and business tax returns and make tax payments.

The IRS announced on August 9, 2024 tax relief for individuals and businesses in four states (South Carolina, Florida, North Carolina and Georgia) and on August 13, 2024 the IRS announced tax relief for individuals and businesses in the state of Vermont affected by Hurricane Debby now have until February 3, 2025, to file various federal individual and business tax returns and make tax payments.

The IRS announced on August 23, 2024 tax relief for individuals and businesses in Puerto Rico affected by Tropical Storm Ernesto that began on August 13, 2024 now have until February 3, 2025, to file various federal individual and business tax returns and make tax payments.

The IRS announced on August 23, 2024 tax relief for individuals and businesses in South Dakota affected severe storms, straight-line winds and flooding that began on June 16, 2024 now have until February 3, 2025, to file various federal individual and business tax returns and make tax payments.

The IRS announced on August 28, 2024 tax relief for individuals and businesses in the U.S. Virgin Islands affected Tropical Storm Ernesto that began on August 13, 2024 now have until February 3, 2025, to file various federal individual and business tax returns and make tax payments.

The IRS announced on September 10, 2024 tax relief for individuals and businesses in Connecticut and New York affected by severe storms and flooding from torrential rainfalls that began on August 18, 2024 now have until February 3, 2025, to file various federal individual and business tax returns and make tax payments.

The IRS announced on September 13, 2024 tax relief for individuals and businesses in Louisiana affected by Tropical Storm Francine that began on September 10, 2024 now have until February 3, 2025, to file various federal individual and business tax returns and make tax payments.

The IRS announced on September 18, 2024 tax relief for individuals and businesses in Pennsylvania affected by Tropical Storm Debby now have until February 3, 2025, to file various federal individual and business tax returns and make tax payments.

The IRS announced on October 1, 2024 tax relief for individuals and businesses in parts of Illinois affected by severe storms, tornadoes, straight-line winds and flooding that began on July 13, 2024 now have until February 3, 2025, to file various federal individual and business tax returns and make tax payments.

The IRS announced on October 1, 2024 tax relief for individuals and businesses affected by Hurricane Helene, including the entire states of Alabama, Georgia, North Carolina and South Carolina and parts of Florida, Tennessee and Virginia now have until May 1, 2025, to file various federal individual and business tax returns and make tax payments.

The IRS announced on October 3, 2024 tax relief for individuals and businesses affected by wildfires that began on June 22, 2024 to the Confederated Tribes and Bands of the Yakama Nation in Washington state now have February 3, 2025, to file various federal individual and business tax returns and make tax payments.

The IRS announced on October 11, 2024 tax relief for individuals and businesses affected by wildfires that began on July 10, 2024 to the San Carlos Apache Tribe in the State of Arizona now have February 3, 2025, to file various federal individual and business tax returns and make tax payments.

The IRS announced on October 11, 2024 tax relief for individuals and businesses affected by Hurricane Milton, including the entire states of Alabama, Georgia, North Carolina and South Carolina and parts of Florida, Tennessee and Virginia now have until May 1, 2025, to file various federal individual and business tax returns and make tax payments.

IRS Tax Relief Details

The IRS is offering this relief to any area designated by the Federal Emergency Management Agency (FEMA), as qualifying for individual assistance.

For Alaska – Individuals and households that reside or have a business in the Juneau area.

For Arizona – Individuals and households that reside or have a business in the San Carlos Apache Tribe.

For Alabama, Georgia, North Carolina and South Carolina – Individuals and households that reside or have a business in the state.

For Florida – Individuals and households that reside or have a business in the state.

For Tennessee – Individuals and households that reside or have a business in the following 8 counties: Carter, Cocke, Greene, Hamblen, Hawkins, Johnson, Unicoi and Washington counties.

For Virginia – Individuals and households that reside or have a business in the following 6 counties:  Grayson, Smyth, Tazewell, Washington, Wise and Wythe counties; and the City of Galax.

For Washington State – Individuals and households that reside or have a business in Confederated Tribes and Bands of the Yakama Nation.

For Illinois – Individuals and households that reside or have a business in Cook, Fulton, Henry, St. Clair, Washington, Will and Winnebago counties

For Pennsylvania – Individuals and households that reside or have a business in Lycoming, Potter, Tioga and Union counties.

For Louisiana – Individuals and households that reside or have a business in the entire state.

For Connecticut – Individuals and households that reside or have a business in Fairfield, Litchfield, and New Haven counties.

For New York – Individuals and households that reside or have a business in Suffolk County.

For the U.S. Virgin Islands – Individuals and households that reside or have a business in any of the U.S. Virgin Islands’ four islands.

For South Dakota – Individuals and households that reside or have a business in Aurora, Bennett, Bon Homme, Brule, Buffalo, Charles Mix, Clay, Davison, Douglas, Gregory, Hand, Hanson, Hutchinson, Jackson, Lake, Lincoln, McCook, Miner, Minnehaha, Moody, Sanborn, Tripp, Turner, Union and Yankton counties

For Puerto Rico – Individuals and households that reside or have a business in any of Puerto Rico’s 78 municipalities.

For Minnesota – Individuals and households that reside or have a business in Blue Earth, Carver, Cass, Cook, Cottonwood, Faribault, Fillmore, Freeborn, Goodhue, Itasca, Jackson, Lake, Le Sueur, Mower, Murray, Nicollet, Nobles, Pipestone, Rice, Rock, St. Louis, Steele, Wabasha, Waseca and Watonwan counties.

For North Carolina – Individuals and businesses and the following 66 counties: Alamance, Anson, Beaufort, Bertie, Bladen , Brunswick, Camden, Carteret, Caswell, Chatham, Chowan, Columbus, Craven, Cumberland, Currituck, Dare, Davie, Davidson, Duplin, Durham, Edgecombe, Forsyth, Franklin, Gates, Granville, Greene, Guilford, Halifax, Harnett, Hertford, Hoke, Hyde, Johnston, Jones, Lee, Lenoir, Martin, Montgomery, Moore, Nash, New Hanover, Northampton, Onslow, Orange, Pamlico, Pasquotank, Pender, Perquimans, Person, Pitt, Randolph, Richmond, Robeson, Rockingham, Sampson, Scotland, Stokes, Surry, Tyrrell, Vance, Wake, Warren, Washington, Wayne, Wilson and Yadkin.

For South Carolina – Individuals and businesses in all 46 counties.

For Georgia – Individuals and businesses in the following 55 counties: Appling, Atkinson, Bacon, Ben Hill, Berrien, Brantley, Brooks, Bryan, Bulloch, Burke, Camden, Candler, Charlton, Chatham, Clinch, Coffee, Colquitt, Cook, Crisp, Decatur, Dodge, Echols, Effingham, Emanuel, Evans, Glynn, Grady, Irwin, Jeff Davis, Jefferson, Jenkins, Johnson, Lanier, Laurens, Liberty, Long, Lowndes, McIntosh, Mitchell, Montgomery, Pierce, Richmond, Screven, Tattnall, Telfair, Thomas, Tift, Toombs, Treutlen, Turner, Ware, Wayne, Wheeler, Wilcox and Worth.

For Vermont – Individuals and businesses in all 14 counties.

For Kentucky – Currently, relief is available to affected taxpayers who live or have a business in Boyd, Carter, Fayette, Greenup, Henry, Jefferson, Jessamine, Mason, Oldham, Union and Whitley counties.

For West Virginia – Currently, relief is available to affected taxpayers who live or have a business in Boone, Brooke, Cabell, Fayette, Hancock, Kanawha, Lincoln, Marshall, Nicholas, Ohio, Preston, Putnam, Tyler, Wayne and Wetzel counties.

The current list of eligible localities is always available on the disaster relief page on IRS.gov.  The declaration permits the IRS to postpone certain deadlines for taxpayers who reside or have a business in the disaster area.

Tax Planning Tip

Individuals and businesses in a federally declared disaster area who suffered uninsured or unreimbursed disaster-related losses can choose to claim them on either the return for the year the loss occurred (in this instance, the 2024 return normally filed next year), or the return for the current year (2023).

Be sure to write the FEMA declaration number on any return claiming a loss.  That number being: “4782-DR“ for Kentucky or “4783-DR” for West Virginia or “3605-EM” for Florida or “3606-EM” for South Carolina or “3607-EM” for Georgia or “3608-EM” for North Carolina or “3609-EM” for Vermont or “4797-DR” for Minnesota or “3610-EM” for Puerto Rico or “4807-DR” for South Dakota or “3611-EM” for the U.S. Virgin Islands or “3612-EM” for Connecticut or “3613-EM” for New York or “3614-EM” for Louisiana or “4815-DR” for Pennsylvania or “4819-DR” for Illinois or “3615-EM” for Hurricane Helene victims or “4823-DR” for Washington State or “3622-EM” for Hurricane Milton victims or “4833-DR” for Arizona or “4836-DR” for Alaska.

Qualified disaster relief payments are generally excluded from gross income. In general, this means that affected taxpayers can exclude from their gross income amounts received from a government agency for reasonable and necessary personal, family, living or funeral expenses, as well as for the repair or rehabilitation of their home, or for the repair or replacement of its contents.

Additional relief may be available to affected taxpayers who participate in a retirement plan or individual retirement arrangement (IRA). For example, a taxpayer may be eligible to take a special disaster distribution that would not be subject to the additional 10% early distribution tax and allows the taxpayer to spread the income over three years. Taxpayers may also be eligible to make a hardship withdrawal. Each plan or IRA has specific rules and guidance for their participants to follow.

Importance To Preserve Records

Keep in mind that the IRS has up to three years to select a tax return for audit. The FTB has up to four years to select a tax return for audit. In some cases this period is extended to six years. When a taxpayer is selected for audit, the taxpayer has the burden of proof to show that expenses claimed are properly deductible. Having the evidence handy and organized makes meeting this burden of proof much easier.

Essential Records to Have for a Tax Audit

If you are getting ready for a tax audit, one of the most important things to do is gather and organize your tax records and receipts. There’s a good chance that you have a large amount of documents and receipts in your possession. No matter how organized you are, it can be a daunting task to collect the right pieces and make sure that you have them organized and handy for the audit conference.

We have seen many tax audits that hinge on whether or not the taxpayer can provide proper documentation for their previous tax filings. A tax lawyer in Orange County or elsewhere can make sure that the documentation is complete and proper.  By submitting this to your tax attorney in advance of the audit, your tax attorney can review your documentation and determine if there are any gaps that need to be addressed before starting the dialogue with the IRS agent.

So what are the most essential tax records to have ahead of your audit? Here are a few must-have items:

  • Any W-2 forms from the previous year. This can include documents from full-time and part-time work, large casino and lottery winnings and more.
  • Form 1098 records from your bank or lender on mortgage interest paid from the previous year.
  • Records of any miscellaneous money you earned and reported to the IRS including work done as an independent contractor or freelancer, interest from savings accounts and stock dividends.
  • Written letters from charities confirming your monetary donations from the previous year.
  • Receipts for business expenses you claimed.
  • Mileage Logs for business use of vehicle.
  • Entertainment and Travel Logs for business

Tips On Reconstructing Records

Reconstructing records after a disaster is important for several reasons including insurance reimbursement and taxes. Most importantly, records can help people prove their disaster-related losses. More accurately estimated losses can help people get more recovery assistance like loans or grants.

Whether it’s personal or business property that has been lost or destroyed, here are some steps that can help people reconstruct important records.

Tax records

Get free tax return transcripts immediately using the Get Transcript on IRS.gov or through the IRS2Go app.  Tax return transcripts show line-by-line the entries made on your Federal income tax returns.  The most three recent tax years are available.

 Financial statements

People can gather past statements from their credit card company or bank. These records may be available online. People can also contact their bank to get paper copies of these statements.

Property records

  • To get documents related to property, homeowners can contact the title company, escrow company or bank that handled the purchase of their home or other property.
  • Taxpayers who made home improvements can get in touch with the contractors who did the work and ask for statements to verify the work and cost. They can also get written descriptions from friends and relatives who saw the house before and after any improvements.
  • For inherited property, taxpayers can check court records for probate values. If a trust or estate existed, taxpayers can contact the attorney who handled the trust.
  • When no other records are available, people should check the county assessor’s office for old records that might address the value of the property.
  • Car owners can research the current fair-market value for most vehicles. Resources are available online and at most libraries. These include Kelley’s Blue Book, the National Automobile Dealers Association and Edmunds.

Develop And Implement Your Backup Plan

Do not wait for the next disaster to come for then it may be too late to retrieve your important records for a tax audit or for that matter any legal or business matter. And if you do get selected for audit and do not have all the records to support what was claimed on your tax returns, you should contact an experienced tax attorney who can argue the application of your facts and circumstances to pursue the least possible changes in an audit.

The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), Los Angeles and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income.  Also if you are involved in cannabis, check out what a cannabis tax attorney can do for you.  And if you are involved in cryptocurrency, check out what a bitcoin tax attorney can do for you.