IRS 2019 Dirty Dozen

The IRS has officially issued an updated list of “Dirty Dozen” tax scams for 2019. Scammers are out there hard at work making not only the lives of taxpayers difficult, but us tax pros as well. Here is the 2019 Dirty Dozen;

  1. Phishing: The ongoing threat of internet phishing scams lead to tax-related fraud and ID left. Taxpayers and Tax Pros need to always be alert for fake emails, text messages, websites and even social media attempts to steal personal information. Watch out for scams posing as the IRS, who will promise you big refunds or go as far as personal threats. Its important to remember NEVER to open attachments or click on links in these types of messages.

  2. Phone Scams: Con artist and aggressive criminals are posing as IRS agents to steal your money and personal information. These spam phone calls (often robo-calls) threaten arrest, deportation, or license revocation if the victim doesn’t pay up. Some scammers might have some of the taxpayers information already including address, last four of your Social Security number or other details. Remember, the IRS will NEVER call you.

  3. Identity Theft: Tax-related ID theft occurs when someone uses a stolen Social Security number or ITIN to file a fraudulent return claiming a refund. Business filers should also be aware that these cyber criminals also file fraudulent 1120s using stolen business identities.

  4. Tax Return Preparer Fraud: The IRS cautions taxpayers to choose tax return preparers carefully. As majority of preparers are honest, there are some dishonest preparers who perpetrate refund fraud, identity theft, and other scams. The IRS suggests looking for a preparer who is available year-round and ask to see the PTIN.

  5. Promises of Inflated Refunds: Look out for inflated tax refunds as it is a common scam targeting people with no filing obligation, such as older people and low-income taxpayers. These scammers are promising larger refunds than competitors or providing refunds substantially larger then you could normally receive and using flyers, advertisements, or word-of-mouth to attack victims.

  6. Falsifying Income and Creating Bogus Documents: This scam involves two types of fraud. The first is falsifying employment or wage income to increase the amount of earned income tax credit. The second scheme involves the filing of fake 1099-MISC (Miscellaneous Income) or a bogus financial instrument such as a bond, bonded promissory note or worthless checks, witch is disguised as a debt payment option for credit cards or mortgage debt.

  7. Inflating Deductions or Credits: This scam involves overstating deductions such has charitable contribution deductions, business expenses, or medical expenses and claiming credits that the taxpayer is not entitled to.

  8. Charitable Contribution Scams: Fake charities often lure victims into making ineligible donations, ultimately leaving the donor without a charitable deduction. A tip from the IRS is to look out for charities with names that re similar to familiar or nationally known organizations.

  9. Improper Claims for Business Credits: The IRS has listed this scam on its Dirty Dozen list for many years now. It involves improperly claiming various business tax credits such as research and fuel taxes. Improper claims for the R&D Credit generally involve a failure to participate in or substantiate qualified research activities and/or a failure to satisfy the requirements related to qualified research expenses; the Fuel Tax Credit is generally limited to off-highway business use or use in farming and is unavailable to most.

  10. Failure to Report Offshore Funds: Numerous individuals have been identified as evading U.S. taxes by attempting to hide income in offshore banks, brokerage accounts or nominee entities then accessing the cash using debit cards, credit cards or wire transfers. Others have used foreign trusts, employee-leasing schemes, private annuities or insurance plans. Failure to report offshore funds is a crime.

  11. Frivolous Tax Arguments: The IRS said that “promoters of frivolous schemes encourage taxpayers to make unreasonable and outlandish legal claims to avoid paying their taxes.” These arguments are always thrown out in court and people who perpetrate these illegal scams may face criminal prosecution.

  12. Abusive Tax Shelters, Trusts, and Conservation Easements: The IRS warns taxpayers to stay away from abusive schemes that tax cheats often promote. They include abusive trusts, abusive micro-captive insurance shelters, and abusive syndicated conservation easements. The three all start with a legitimate tax-planning tool that is improperly distorted almost always by a promoter to produce benefits that are too good to be true and ultimately seriously compromise the taxpayer.

Illinois Expands Manufacturing Exemption to Supplies, Fuels, and More

According to an article found on CCH IntelliConnect Tracker News, supplies and consumables used in manufacturing are exempt from Illinois sales and use tax beginning July 1, 2019. Recent tax legislation expands the manufacturing exemption to once again include production related tangible personal property.

Items Qualifying for the Manufacturing Exemption

Illinois gives manufacturers a sales tax exemption for purchases of machinery and equipment used in:

  • manufacturing; or

  • assembling.

The new tax law includes supplies and consumables in the definition of machinery and equipment for the exemption.

For example, in addition to supplies, manufacturers can buy various items exempt from sales tax if the items are related to the production of property:

  • fuels

  • coolants

  • solvents

  • oils

  • lubricants and adhesives

  • hand tools

  • protective apparel

  • fire and safety equipment.

Meeting Exemption Requirements

A manufacturer’s use of the item also must meet existing requirements for its purchase to qualify for the exemption.

For example, the property must be primarily used in manufacturing and assembly.

Further, product or good manufactured or assembled must be for wholesale or retail sale or lease.

Regulations on Exemption for Production-Related Property

The Department of Revenue must issue rules on how to take the exemption and how it will be administered.

P.A. 101-09 (S.B. 689), Laws 2019, effective as noted

If you have any tax questions and are looking for an expert, please contact Bryan at bryan@cpamd.com

Illinois is set to be the 11th State to legalize cannabis come 2020.

Illinois lawmakers have approved a legalization bill that if signed, would make Illinois the 11th state. Gov. J.B. Pritzker, who focused his election campaign last year on cannabis legalization and already promised to sign the bill, is likely the last signature needed.

The bill will take effect January 1, 2020 and will allow adult (21 and older) Illinois residents to possess up to 30 grams of cannabis flower, 5 grams of cannabis concentrate and 500 milligrams of THC in any infused product, such as an edible. Nonresident visitors to Illinois will only be allowed to possess 15 grams.

This bill establishes a tax and regulated plan for a cannabis marketplace that would include licenses for cannabis dispensaries and cultivators. Home grow will not be allowed under the plan unless you are a registered medical cannabis patient.

“The state of Illinois just made history, legalizing adult-use cannabis with the most equity-centric approach in the nation. This will have transformational impact on our state, creating opportunity in the communities that need it most and giving so many a second chance. … In the interest of equity and criminal justice reform, I look forward to signing this monumental legislation.”—Gov. J.B. Pritzker, in a series of tweets.

For more information on how CPAMD can help start your new Canna-Business, email Bryan today at; bryan@cpamd.com

2019 ChiCannabis Expo: Getting to Know Bryan McDonald of CPAMD

Recently, our Client Development Partner Bryan McDonald got the chance to sit down with The Cannabis Industrial Marketplace for a 1 on 1 interview. Blow you’ll find a copy of the article Published by Adam with CIMP. Visit their website for more; https://www.cannabisimp.com/2019-chicannabis-expo-getting-to-know-bryan-mcdonald-of-cpamd/


Ever heard of the 280E tax code? It’s a must-know for anyone who’s looking to enter the quickly growing cannabis industry.

However, if the term seems foreign, listen to Bryan McDonald, who is well-versed in that particular code and how it impacts marijuana entrepreneurs. Since 1984, CPAMD has handled an array of clients in a wide range of fields.

“It’s a 77-word paragraph that basically says that no deductions will be allowed for the manufacturing, advertising, distribution or promotion of Schedule 1 narcotics, which obviously includes weed,” said the founder of CPAMD, a Chicago-based accounting firm and 2019 ChiCannabis Expo title sponsor. “And it includes heroin, by the way, which is ridiculous (to compare to marijuana).”

Right now, 280E is the “law of the land,” but that could soon change on a federal level, says McDonald, who cited the pressure applied to Congress from lobbyists — who, in turn, have connections to “big pharma, big tobacco and big liquor” — to remove marijuana from Schedule 1 status. Once that happens, large corporations will certainly dive into the “third-fastest growing” sector in the United States economy.

But how did 280E come to fruition? What prompted the IRS to create a sub-chapter focused on such economic growth?

The answer: Jeffrey Edmondson, a former drug dealer from Minneapolis who had a run-in with the IRS in 1981.

“The IRS comes in and says, ‘Look man, you’ve made substantial money from this industry, and we want you to pay taxes on it,'” McDonald said, relaying the story. Along with marijuana, Edmondson also dealt in cocaine and other dangerous narcotics. McDonald continued: “Edmondson said, ‘Fine, I’ll pay taxes — but, by the way, I’m deducting all of my expenses.'”

And he did, successfully deducting expenses such as transportation, scales, rent and other business expenses used in the illegal trade.

One year later, the IRS countered with 280E, making sure another Edmondson wouldn’t exploit a loophole and claim victory in tax court.

Knowing the story comes in handy for McDonald. Sure, it makes for interesting conversation, but it also serves a purpose for those looking to get into the emerging cannabis industry.

“Think outside of the box,” McDonald said, later adding: “You better have your eyes wide open.”

McDonald’s goal isn’t just to help navigate potential clients through new territory, but to provide lasting education for the long run.

“You have to almost have to look at every expense and decide (how to categorize),” said McDonald, emphasizing the importance of 471 costs — which are good — vs. other codes. “That’s basically the game that has to be played. I feel CPAMD is probably in the top five or six CPA firms in this industry.”

CONNECTING IN TULSA

In April, McDonald was a guest speaker at the 2019 OKCannabis Expo in Tulsa, Okla., presenting to a capacity crowd at Central Park Hall. He loves connecting with those in search of answers, tips and hints, and the expo was an ideal venue for a cannabis industry-based discussion.

“There were standing-room-only crowds, and it was a great event for us,” McDonald said. “There were people sitting on the floor. There’s a great need for the expertise of the taxation of cannabis in Oklahoma (and in other markets).”

Weeks later, in early May, McDonald received a phone call from someone who attended his seminar in Tulsa.

They were searching for advice and hoping McDonald would conduct a webinar focused on the Oklahoma market.

“Oklahoma is passing out (dispensary) licenses like there is no tomorrow, and CPAs want to get involved,” McDonald said. “But they just don’t know what they’re doing.”

Attending events like the one in Tulsa allows McDonald — who speaks across the country — to continue doing what he loves, which is spreading knowledge.

“I like to communicate, and I think that is an advantage,” said McDonald, who’s led CPAMD since 1984, later adding: “I believe we should keep money in the hands of small business. It’s everybody’s legal right to minimize tax liability – that’s a constitutional right. I’m able to look at companies and see what I can deduct, how I can minimize their taxes. I want to keep money in the hands of small business, which is the engine of our economy.”

LIMITLESS POSSIBILITIES

Throughout the years, McDonald has encountered just about everything possible in the world of taxes. He’s even recently helped clients dive into the cannabis industry — but not because of the economic potential, but because he shares a similar belief with many who are getting into the industry.

“Believe it or not, we’re at the forefront of this,” McDonald said of his firm’s presence in the cannabis business space. “We got in very early. And what I mean by that is, we’ve been involved for five years and we’re like veterans. We’ve done some pretty exotic stuff, but cannabis — by and large — is the most complex industry. To a large extent, we started to see that the growth for traditional accounting services was limited, and this is an industry that’s unlimited.”

While any investment comes with risk, and payoffs aren’t always immediate, putting resources into cannabis could prove to be a wise move — if done correctly and planned with care.

“You have to know how to frame the investment,” McDonald said.

There’s another facet to the marijuana industry that piques interest for McDonald. Again, it’s more than business and taxes — it’s about something much more important and personal.

“I have three military sons, and each one of them knows a fellow soldier who has PTSD,” he explained. “PTSD is well-served by marijuana. They’re not able to get any sleep in some cases, and ultimately, you go crazy. What cannabis does is give them an opportunity to get six or eight hours of sleep and slow their minds down a little bit. There’s a humanitarian tie to it. I really believe we need to take care of our veterans.”

Oklahoma Governor Signs "Unity Bill"

Oklahoma Gov. Kevin Stitt signed into law regulations governing the states rapidly growing medical cannabis industry this past Thursday.

Known as the “Unity Bill” for its support to various factions of the cannabis industry, sets up guidelines for inventory testing and tracking, advertising, packaging and labeling. It also allows employers to fire medical marijuana users who work “safety-sensitive” jobs that test positive for cannabis use.

Additional details for the bill include;

  • Products will be tested for pesticides, THC, terpenoid potency and heavy metals.

  • Producers will be prohibited from using images on packaging other than their business name logos and product images. Packaging must include a universal THC symbol, the level of THC and potency and a statement that the product was tested for contaminants.

  • The state will use a seed-to-sale tracking system that will track batch numbers, product types, sales details and other inventory information.

 As of March 11, state regulators have approved licenses for over 1000 dispensaries, close to 2000 growers and a little over 500 processors.

Efforts To Remove Marijuana From Controlled Substance List

On Thursday morning, Reps. Tulsi Gabbard (D-HI) and Don Young (R-AK) introduced what they called a “landmark” piece of legislation, the Ending Federal Marijuana Prohibition Act of 2019. Only Three months in, 2019 has already been an exciting year for the marijuana industry. The number of supporters towards legalization is at record highs and there had been an increasing number of politicians advocating for drug reform as well.

In a press conference, Gabbard, said the bill would remove marijuana from the federal Controlled Substances list, thereby allowing states to set up their own laws regulating the substance. In his statement, Young focused on the fact that federal drug laws penalize those who own and operate legal marijuana businesses, who are generally barred from opening bank accounts or receiving loans.

 This has not been confirmed but would be very good news for cannabis companies.

The Marijuana Banking Bill Is Coming Back

The House Financial Services Committee released its latest draft legislation creating a “safe harbor” for banks to serve the cannabis industry, six years after it was initially introduced, on February 7th 2019. The bill will prohibit federal regulators from penalizing banks and other financial institutions that provide banking services to the cannabis industry business owners and employees.

With the rapidly expanding cannabis businesses and state legalization, the bill supporters claim that it will provide the industry legal clarity as they face serious financial and security risks.

Entitled the “Secure and Fair Enforcement Banking Act of 2019” (SAFE Banking Act of 2019), will push for greater protections than its previous version including:

  1. Identifies and adds protection for businesses providing products or services to cannabis-related businesses

  2. Adds protections for marijuana-related “retirement plans or exchange trade funds” along with “the sale or lease of real or any property/legal or other licensed services related to cannabis”

  3. Protection for the “distributing or deriving any proceeds, directly or indirectly, from cannabis or cannabis products”

  4. Specifies how businesses on tribal land could qualify

  5. Requires that the Federal Financial Institution Examination Council develop guidance to help financial institutions lawfully serve cannabis-related legitimate businesses

This bill is authored by Reps. Ed Perlmutter (D-CO), Denny Heck (D-WA), Steve Stivers (R-OH) and Warren Davidson (R-OH), who have indicated that they plan to re-introduce the Safe Baking Act by the end of the month.

Say Goodbye to Michigan’s State Medical Cannabis Licensing Board.

According to an article found on Ganjapreneur.com, Michigan Gov. Gretchen Whitmer (D) has signed an executive order eliminating the state’s medical cannabis licensing board.

The volunteer board had been tasked with considering license applications but had struggled to keep pace, causing the state medical cannabis program to fall behind projected growth rates.

The state legislature has the power to veto the governor’s order, but Whitmer said she spoke to the state Congressional leadership before issuing the order.

Licenses will now be handled by a subdepartment of the Michigan Department of Licensing and Regulatory Affairs, the Marijuana Regulatory Agency.Michigan‘s soon-to-be-defunct Marijuana Licensing Board will fully shutter on April 30.

When the state’s adult-use program comes online, it will also fall under this department. To date, the licensing shortfalls for medical cannabis have been handled by allowing unlicensed businesses to continue operating, though that leniency period ends on March 31.