The Recent Crackdown by The City of Sacramento Demonstrates it is no Longer Business as Usual

IT WAS ALL GREAT UNTIL THERE WAS A KNOCK ON THE DOOR 

You thought it was a great idea to make some cash on the side and turn your personal residence into a cannabis cultivation facility. It all went great until a knock on the door by law enforcement resulted in a Swat Team invading your house. Gone were the plants and now the hassle begins. You had 99 plants in your house which is what your Medicinal Marijuana script allowed. The City of Sacramento did not care and issued a citation for 93 excess plants over the six you are allowed to grow and the fine is over $45,000. 

Now your spouse is ticked off, your in-laws are calling you an idiot and the City is breathing down you back. Even worst, six months later a letter shows up from the IRS stating you are being audited. 

WHAT DO I DO?

  • The problem is not going to go away.
  • Give us a call at 702-250-5608.
  • An honest and frank discussion will take place.
  • The initial consultation is free. 
The City of Sacramento over the last two months has instituted an aggressive enforcement campaign against illegal grows inside of personal residences. The fine is $500 per plant. Over 600 raids were conducted and over $7 million in administrative fines issued. This is serious stuff. As an example, if you are growing 250 plants inside your house and garage, you can be facing a $125,000 fine. That is less than getting a properly zoned location and getting legal. Is your home worth risking? Read the entire story that was in the Sacramento Bee
 
As January 1, 2018 approaches the enforcement will become more intense and pronounced. The fees being collected from legal operations will be used to provide the funds law enforcement has been lacking to carry out enforcement campaigns. As jurisdictions draft regulations allowing commercial cannabis activity; they are also adding in administrative fines and fees to punish those that continue to illegally grow cannabis. 

If you have been cited, give our office a call and let's discuss the matter. The administrative fine may be only the beginning of your problems. You may now be facing tax reporting issues related to back taxes. A source of your income you depend on has now evaporated. Our Firm is here to assist in representing you in the Administrative Fine proceeding. Part of the process has to be you ability to demonstrate you either have completely stopped illegally growing cannabis or have taken proactive steps to find a location to legally participate in the cannabis industry and get properly licensed. 

The public record of you illegally cultivating cannabis is also a "homing beckon to the IRS" that income may have been under reported and result in an IRS Audit. Unexplained cash deposits, large purchases such as automobiles and other expenditures can result in large fines, penalties and even criminal charges for tax fraud. 

Compliance With Local and State Laws and Regultions is Critical:

AN ASSET PROTECTION PLAN IS CRITICAL​

Companies and Individuals often face complex disputes with other businesses, government entities, or groups of individuals, which requires that an asset protection plan be in place prior to such disputes arising. An asset protection plan involves business assets, personal assets and an estate plan. 
 

Engaging an experienced cannabis business attorney will help ensure your cultivation business is being operated in compliance with the laws of the State of California. Proving compliance with state law may be critical in defending an asset forfeiture. It is hard  to argue what you were doing was legal under state law if you are not in compliance. Staying on the right side of the IRS is important in any business. But never is that more true than if your business is medical marijuana. Real estate trusts and others tools of probate or investment may also afford additional protections under the law. However, much of the protections have now been stripped away because local jurisdictions and the State of California are requiring signed acknowledgement from a landlord that the landlord understands a cannabis business is being operated in the leased premises. This has effectively eliminated the "innocent third party defense" that landlords had to protect against seizures by the federal government. 

Bankruptcy is Not an Option For a Cannabis Business:

The prohibition on bankuptcy filings initiated by companies that deal in cannabis has harmed distressed companies in leveraged negotiations and gives creditors significant leverage over a distressed debtor. Bankruptcy, or the threat of bankruptcy, is a powerful bargaining chip that helps distressed companies level the playing field against aggressive creditors or rid itself of burdensome contracts. Without this threat, many creditors are able to bully distressed companies into accepting onerous or one-sided terms, and that opens up companies to predatory lenders who have designs on seizing control their operations. A cannabis company’s most valuable asset is usually its marijuana inventory, and secured creditors that do not meet the requirements to operate legal marijuana businesses under state or local laws are often prevented from seizing possession of that collateral in a foreclosure. The main problem, of course, is that there is no such thing as bankruptcy for pot businesses. Because cannabis is still a controlled substance, things can get messy. Bankruptcy courts have ruled repeatedly that pot businesses are ineligible for protections under the law. Recently, the Department of Justice directed its minions to stay away from all bankruptcy cases involving cannabis. The main problem, of course, is that there is no such thing as bankruptcy for pot businesses. Because cannabis is still a controlled substance, things can get messy. Bankruptcy courts have ruled repeatedly that pot businesses are ineligible for protections under the law. Bankruptcy is governed by federal law, in federal courts. Hence, it would be impossible for a U.S. bankruptcy trustee to control and administer a debtor’s assets (weed) without violating the federal Controlled Substances Act. Bankruptcy is governed by federal law, in federal courts. Hence, it would be impossible for a U.S. bankruptcy trustee to control and administer a debtor’s assets (weed) without violating the federal Controlled Substance Act. 

Tax Penalties Can Be Crushing

Failing to File a Tax Return (Not Filing) Penalty or Charge

This is a misdemeanor, and normally civil tax penalties are assessed, instead of criminal. Although unlikely, you could face up to 1 year in jail and $25,000 in fines for each year you failed to file. One thing to note is that you can only face criminal charges for not filing a tax return (with civil penalties there is no time limit) if it was due no more than six years ago. As long as you file before the IRS contacts you, you are in the clear. This charge is more common than the former because the IRS only has to prove that you did not intend to file.

Filing a Fraudulent Return Penalty or Charge

This is a felony, and a form of fraud. This is more common than tax evasion simply and less severe. It carries up to 3 years in prison, and up to $250,000 in fines for individuals and $500,000 for corporations.

Tax Evasion Penalty or Charge

This is a type of criminal felony whereby a taxpayer willfully uses illegal means to conceal or misrepresent financial details in order to evade tax laws and avoid paying taxes. If convicted, tax evasion carries up to 5 years in jail and up to $250,000 in fines for individuals and $500,000 for corporations. This is different than filing a false tax return.

Willfully Failing to Pay Estimated Taxes or Keep Records

This is a misdemeanor, and normally civil tax penalties are assessed, instead of criminal. Although unlikely, you could face up to 1 year in jail and $100,000 in fines for individuals and $200,000 for corporations.