Author Archive for Robin Sheehan

IRS Audits Colorado Marijuana Companies

State legalization of both medicinal and recreational marijuana has created tension between states and the federal government. Marijuana remains an illegal substance under federal law and state-legalized marijuana businesses are encountering problems with federal banking regulations and aggressive IRS audits.

Are IRS Audits of Legalized Marijuana Businesses a Violation of Federalism?

Proponents of marijuana legalization argue that IRS audits are targeting the marijuana industry and are an abuse of power in violation of federalism principles. Federalism is the balance of power between federal and state governments. The Founding Fathers enumerated certain powers for the federal government in the Constitution, but also included the 10th Amendment to reserve unenumerated powers for the states. The theory was that states should govern themselves without interference from the federal government and the federal government should only regulate areas that states could not, such as foreign affairs and interstate commerce.

IRS audits targeting marijuana businesses could be an abuse of federal power because they interfere with an industry Colorado has legalized. Because of federal banking regulations, many banks refuse to work with marijuana businesses making it difficult for growers and retailers to open bank accounts. Marijuana 2Since it is difficult for marijuana businesses to open accounts, most operate as cash businesses. Although the IRS has not admitted it is targeting the industry, cash-operated businesses are vulnerable to audits. Moreover, at least 30 marijuana companies in Colorado are currently being audited for the 2013 and 2014 tax years.

The Constitution grants the federal government broad powers to tax, but it is also a widely accepted principal that the federal government has the power to regulate banks under its enumerated power to regulate interstate commerce. Thus, marijuana businesses would have a hard time challenging these banking regulations and IRS practices.

Tax Compliance for Marijuana Businesses

Until the federal government amends banking regulations, marijuana businesses will continue to run a high risk of IRS audits. Thus, it is imperative that marijuana businesses comply with federal tax laws.

In general, profits from illegal activities are considered taxable income under federal tax law. The federal government taxes state-legalized marijuana, even though it is still an illegal substance under the Controlled Substances Act. It appears that the current IRS audits of Colorado marijuana businesses are related to compliance with section 280E of the Internal Revenue Code and Form 8300. Accordingly, marijuana businesses should have a basic understanding of section 280E and Form 8300.

Since marijuana is an illegal substance under federal law, business deductions are disallowed under section 280E. There is one exception to this rule. Marijuana businesses can deduct the cost of goods sold. For instance, a dispensary can deduct what it paid for marijuana products purchased from a grower. However, most business expenses, such as employee salaries, advertising costs, or rents, are not deductible.

Filing Form 8300 is also required for many marijuana businesses, since most deal with large amounts of cash. Form 8300 is a document that must be filed if the business has cash payments over $10,000.

What Should Marijuana Companies Do in Response to an Audit?

Marijuana businesses, and any business for that matter, can make the audit process less stressful by adhering to the following recommendations:

  1. Organize Business Records: Taxpayers subject to audits should review returns for the years subject to audit to ensure they have documentation for their claimed deductions i.e. credit cards statements and receipts.
  2. Hire a Tax Professional: Businesses are advised to hire a tax professional to ensure responses to IRS inquiries are timely and the appropriate documents are sent to the IRS.
  3. Understand the Law: Is it also important for taxpayers to know their rights during audits. For instance, taxpayers generally have 30 days to file an appeal if the taxpayer disagrees with the audit decision.

Assuming the business complied with federal tax laws, an audit is usually nothing more than a mere inconvenience. But, if the IRS discovers the taxpayer has not complied with tax laws, the taxpayer may be subject to fines for civil audits and prison time in the case of criminal audits. Since it appears that the marijuana industry is a target for audits, it is essential they comply with federal tax laws.

What People Ought to Know About Louisiana’s New Marriage Law

Many foreign-born people have been denied marriage licenses in Louisiana after the state passed restrictions on marriage based on immigration. Proponents of this bill claim it deters marriage fraud by preventing illegal immigrants, including terrorists, from getting married. But, this bill has also prevented many legal immigrants from obtaining marriage licenses, and has mostly impacted Louisiana’s Laotian and Vietnamese refugee communities.

House Bill No. 836

The bill introduces new requirements for a Louisiana marriage license, including requiring a birth certificate. Birth certificate requirements differ for U.S.-born persons and foreign-born persons. A U.S.-born person may obtain a judge’s waiver if unable to provide a birth certificate. But, this waiver exception does not apply to people born outside the U.S., even if he or she can produce an unexpired visa or proof of citizenship.  In short, if a foreign-born person cannot produce a birth certificate, then he or she cannot get married in Louisiana.

The Story of Marilyn Cheng and Out Xanamane

Marilyn Cheung and Out Xanamane’s marriage license struggles highlight the absurdity of this bill. This Louisianan couple, like many in Louisiana’s Laotian community, had a traditional Buddhist ceremony in 1997, but never obtained a formal marriage license mistakenly believing they had a common law marriage. The couple learned they were not legally married when Mr. Xanamane discovered he had liver cancer and was not covered by Ms. Cheung’s insurance. Although the couple have lived as husband and wife for nearly 20 years and have four children together, Louisiana does not recognize common law marriages. Marriage

Subsequently, the couple went to a Louisiana courthouse to obtain a formal marriage license. Even though Mr. Xanamane brought his green card, refugee documents and driver’s license, they were turned away because Mr. Xanamane did not have a birth certificate. Mr. Xanamane has legally resided in the U.S. since 1986, but he was born in Laotian village in 1975 when the country fell to communism. His family fled the country and he never received a birth certificate. Thus, despite Mr. Xanamane’s liver condition, the couple drove fourteen hours round -trip to Alabama where the court accepted Mr. Xanamane’s immigration documents and issued them a marriage license.

Ms. Cheung and Mr. Xanamane are not the only couple enduring hardships under this new law. Since the law was enacted, about six to eight couples every month have been denied marriage licenses in Orleans Parish alone.

Is the Bill Xenophobic or a Necessary Protection of American Sovereignty?

Proponents claim this legislation prevents illegal immigrants, and possibly terrorists, from obtaining citizenship through marriage. But, the birth certificate requirement place unnecessary burdens on legal immigrants, particularly on Louisiana’s Laotian and Vietnamese refugee communities.

Many foreign-born people legally reside in the U.S. without birth certificates. Simply requiring valid immigration paperwork, like Alabama, would be equally effective in preventing illegal immigrants from obtaining marriage licenses. Moreover, requiring birth certificates unlikely deters terrorists legally in the U.S. from marriage, since many terrorists come from countries, including the U.S., that do issue birth certificates.

While the bill remains ineffective in deterring terrorists from marriage, it does have a disproportionate impact on Louisiana’s Vietnamese and Laotian refugee communities. In the 1970s and 1980s, many refugees from Vietnam and Laos went to Louisiana to seek asylum from war and communism. Many of these former refugees have since obtained green cards or U.S. citizenship, but do not have birth certificates. Refugees and other immigrants fleeing violent-life threatening situations, were either never issued birth certificates or were unable to bring one. Moreover, refugees tend to come from countries with failed governments, and thus, it would be impossible to obtain a birth certificate, even if one was originally issued.

Since the birth certificate requirement is unnecessary to achieve its purpose in preventing illegal immigrants from marriage, we can only conclude it was enacted to place hardships on the Vietnamese and Laotian refugee communities in Louisiana. But, if we give Louisiana’s legislature the benefit of the doubt, the bill is at best a poorly thought-out law that needlessly inconveniences foreign-born people living in United States legally.

What Taxpayers Ought to Know About IRS Scams

A recent upsurge of IRS phone scams in Fort Worth, Texas has brought national attention to the issue. So far this year, over $73,000 has been stolen from Fort Worth residents by callers claiming to be IRS employees. IRS phone scams are a nationwide problem. Last year, over 300,000 incidences were reported from all over the country.

These phone scams usually involve imposter IRS employees telling victims that they owe back taxes, or unpaid taxes, from a previous year. Sometimes, the scammers will threaten to call the police if the victim does not pay. Scammers will also claim that the victim is being audited in order to acquire financial information.

Having a basic understanding of IRS procedures for back-tax collections and audits will help alert you to scams.

IRS Collection Procedures

Individuals owe back taxes if they did not pay their taxes in full or in part. There are several steps the IRS takes to collect back taxes.

The first step in the collection process is to provide the taxpayer with notice, by sending a notice letter. This letter will contain a bill for the amount owed, including interest and penalties, and a demand for the taxpayer to pay in full. If the taxpayer does not respond to the IRS, it will send another letter with an assessed balance that includes interest and penalties. If you did not receive a notice prior to the phone call in question, it is likely a scam. IRS

If the taxpayer cannot pay-in-full there are usually several options available, such as installment agreements or offers-in-compromise. An installment agreement allows the taxpayer to pay incrementally. An offer-in-compromise is where the taxpayer negotiates with the IRS to pay a reduced amount in lieu of the full amount.

Only after the notice letter, and the taxpayer’s failure to pay, will the IRS initiate collection proceedings. Typically, the IRS files a Notice of Federal Tax Lien if the taxpayer fails to pay. A tax lien is a claim to the delinquent taxpayer’s property that is used as security for unpaid tax debt. The IRS will also use wage garnishments and bank levies to collect unpaid taxes.

IRS Audit Procedures

The IRS performs audits to review financial information and assess whether tax return information was reported accurately.  Taxpayers are selected for audits at random and when the information reported on their returns does not match their tax documentation, such as W-2s or Forms 1099s.

Audits begin with a mailed letter or phone call informing the taxpayer that he or she is being audited. If the IRS contacts the taxpayer by phone, a letter will be sent confirming the audit. These notification letters usually list documents and other materials that must be sent to the IRS. After the IRS reviews the information sent, it makes a determination whether the information reported was correct. If the taxpayer disagrees with the determination, then the taxpayer may appeal within 30 days.

If a caller asks for financial information directly over the phone, it is likely a scam since the IRS usually sends a letter confirming an audit and listing documents that must be sent.

IRS Scam Alerts

In addition to failing to follow IRS procedures, there are other common scam indicators. For instance, scammers frequently require unusual payment methods and threaten serious consequences unless their victim makes an immediate payment.

Reports state that the IRS imposters require payments through pre-loaded debit cards or wire transfers. Frequently, scammers will request iTunes gift cards as payments, telling their victims that the IRS has partnered with iTunes. The real IRS normally does not accept over-the-phone payments, even with regular debt or credit cards.

Victims are also frequently told that if they do not pay immediately, they will be arrested, deported, or face suspension of drivers’ licenses. Unless you have committed a serious tax crime, it is more likely that the IRS put a tax lien on your property. Tax liens usually show up on credit reports because the IRS files a Notice of Federal Tax Lien to put other creditors on notice. If no tax lien appears on your credit report, it is unlikely that you need to pay taxes immediately.

If an “IRS employee” does not follow the procedures for tax collection, audits, and refunds laid out above, it is likely a scam.

The Return of Stop and Frisk?

Donald Trump’s statements during the first presidential debate of 2016 raised two issues about Stop and Frisk; a controversial practice used by police departments across the country. Firstly, there was confusion about the accuracy of Mr. Trump’s statement that the practice is still constitutional. There was also speculation as to why gun rights activists, specifically the National Rifle Association (NRA), remained silent after Mr. Trump’s comments about Stop and Frisk.

What is Stop and Frisk?

As a general rule, police officers must obtain a warrant based on probable cause for a search or seizure to be constitutional under the Fourth Amendment. Stop and frisk, also known as a “terry stops,” provides an exception to the warrant requirement.  The name “terry stop,” comes from the case Terry v. Ohio, where the Supreme Court held that police officers may briefly detain a criminal suspect without a warrant. Due to safety concerns, officers may also perform a “pat-down,” or search a suspected criminal’s outer clothing, upon reasonable suspicion that the individual is armed and dangerous.  Stop and Frisk

A controversial facet of this practice is that stops require an officer’s “reasonable suspicion” that an individual committed or is about to commit a crime, rather than probable cause.  Probable cause requires at least some concrete evidence that a crime has been committed, whereas reasonable suspicion merely requires an officer’s reasonable belief of criminal activity. Stop and frisk critics argue that the practice has led to increased racial profiling, because police officers do not need concrete evidence for stops.

Are Terry Stops Still Constitutional?

After the debate, there appeared to be confusion among fact-checkers as to whether Mr. Trump was correct that terry stops are still constitutional after the decision in Floyd v. City of New York. In Floyd v. City of New York, a district court judge ruled that the New York Police Department’s stop and frisk practice was an unconstitutional violation of the plaintiff’s rights under the Equal Protection Clause and Fourth Amendment.

As Lester Holt correctly pointed out, the decision was made because the practice constituted racial profiling. The court’s decision was based on statistical data demonstrating a disproportionate impact on Blacks and Hispanics under the practice. Of the 4.4 million people stopped under the policy only 10 percent were White, while 52 percent were Black, 31 percent were Hispanic. Of the millions of people frisked, only 1.5 percent had weapons on them. It also appeared that whites were just as likely to possess drugs or weapons as their Black and Hispanic counterparts. Since the court’s decision, a monitor has been appointed at the NYPD to oversee that the practice stays within constitutional limits and Mayor de Blasio has dropped the appeal.

In short, the practice was found unconstitutional as it was applied in New York City, but, terry stops in general are still constitutional.

Why Has the NRA Been Silent about Terry Stops?

Several conservative commentators criticized the NRA for its silence regarding Mr. Trump’s support of the stop and frisk practice. During the debate, the NRA tweeted about every anti-gun comment made by Mrs. Clinton. Yet the NRA remained silent during Mr. Trump’s statement “we have to take the guns away from these people that have them and that are bad people that shouldn’t have them.”

The data generated by New York City’s stop and frisk policy supports the NRA’s anti-gun restriction arguments. In New York City, crime rates have continued to drop, even after the aggressive stop and frisk policy was modified.  In other words, crime rate reductions do not seem to correlate with weapon confiscation. These statistics provide more credibility to the organization’s famous saying “guns don’t kill people, people kill people.”

Shouldn’t the NRA join the ranks of people disputing the constitutionality of terry stops… perhaps with a Second Amendment argument?

What Employees Ought to Know About Dreadlocks in the Workplace

On September 16, 2016, the Eleventh Circuit Court of Appeals held that prohibiting an employee from wearing his or her hair in dreadlocks is not racial discrimination.  Historically, courts have found in favor of employers on this issue. The Eleventh Circuit’s decision was soundly based on prior case interpretation, but sparked the debate as to whether race discrimination laws should protect cultural characteristics.

Equal Employment Opportunity Commission v. Catastrophe Management Solutions

The suit arose when Catastrophe Management Solutions (CMS) rescinded a black women’s job offer because she refused to cut off her dreadlocks. In 2010, Chastity Jones was hired by CMS as a customer service representative. CMS’ human resources manager Chastity Jones later informed Ms. Jones that CMS would not hire her “with the dreadlocks,” because “they tend to get messy.” CMS had a policy stating that “hairstyle[s] should reflect a business/professional image.” Ms. Jones refused to cut off her dreadlocks and her job offer was rescinded.

The Equal Employment Opportunity Commission (EEOC) brought suit on behalf of Ms. Jones in federal district court alleging unlawful race discrimination. The district court dismissed the claim and the EEOC appealed to the Eleventh Circuit.

Title VII of the Civil Rights Act

In the district court, the EEOC alleged race discrimination under sections 2000e-2(a)(1) and 2000e-2(m) of Title VII of the Civil Rights Act.  Section 2000e-2(a)(1) and section 2000e-2(m) provide two separate causes of action for employment discrimination based on race, color, religion, sex and national origin.

  • Section 2000e-2(a)(1) (Disparate Treatment): Section 2000e-2(a)(1) states that it is “unlawful [for employers] to fail or refuse to hire or to discharge any individual … because of such individual’s race, color, religion, sex or national origin.” Employees must prove the employer intentionally discriminated against the employee because of an immutable characteristic.
  • Section 2000e-2(k)(1) (Disparate Impact): Section 2000e-2(k)(1) does not require proof of an employer’s discriminatory intent. Instead, the employee must prove that an employment practice has an adverse impact on a protected group.

On appeal, EEOC argued disparate treatment only under section 2000e-2(a)(1). EEOC argued that prohibiting dreadlocks was racial discrimination, “because dreadlocks are a manner of wearing the hair that is physiologically and culturally associated with people of African descent” and that “race encompasses cultural characteristics related to race or ethnicity.” The appellate court disagreed and held that the EEOC failed to prove intentional discrimination as required by the statute.

Was the Eleventh Circuit’s Decision Correct?

The decision appears consistent with standards established by prior court rulings that hairstyles are not immutable characteristics. The Eleventh Circuit distinguished court decisions protecting immutable characteristics from unprotected mutable characteristics. In Jenkins v. Blue Cross Mut. Hosp. Ins., Inc., the Seventh Circuit held against an employer for denying a promotion because the plaintiff “wore her hair in a natural Afro.”

Whereas, in Rogers v. Am. Airlines, Inc., the District Court for the Southern District of New York upheld an employment policy banning braided hairstyles because braids are a mutable characteristic. The Eleventh Circuit stated that “as far as we can tell, every court to have considered the issue has rejected the argument that Title VII protects hairstyles culturally associated with race.”

Although the Eleventh Circuit was reluctant to include cultural characteristics within the definition of race, the decision raised the debate over whether definitions should be expanded. Given the complexity of race in American society, the Eleventh Circuit stated that issues regarding race definitions in Title VII should be “resolve through the democratic process.” The Eleventh Circuit even commended Ms. Jones on her “intensely personal decision and all it entails.” Nevertheless, the court stated that it is merely tasked with interpreting Title VII, “not with grading competing doctoral theses in anthropology or sociology.”

In the diverse fabric of the United States, perhaps legal definitions of race should be expanded. The debate as to whether cultural characteristics should be accommodated in Title VII continues, but the Eleventh Circuit made clear that the fight should be taken to the legislature, not the courts.