Posts tagged ‘IRS’

Don’t forget to pay your illegal taxes

Time’s running a little short for yours truly today, but I couldn’t resist posting a blog about this column from De Jon Harris, Commissioner of the Small Business/Self Employed Examination of the IRS (that’s one heck of a title).  He reminds aspiring marijuana entrepreneurs that even businesses violating federal law must pay taxes.  Apparently the IRS is going to leave no stone unturned in its effort to help the Biden Administration gather $3.5 trillion for all its spending plans. 

Now, don’t get me wrong.  Everyone knows that it was his failure to pay taxes that landed Al Capone in Sing Sing.  But there is something truly bizarre about the IRS going all in on providing tax advice for an industry it openly concedes is illegal and as a result cannot take advantage of any of the traditional tax exemptions available to other small businesses.  The guidance is another example of how we are well past the time when the federal government should allow marijuana businesses to enter the mainstream.  As the Commissioner himself notes, “. . .these businesses are often cash intensive since many can’t use traditional banks to deposit their earnings. [the federal/state dichotomy] creates unique challenges for the IRS on how to support these new business owners and still promote tax compliance.”

Aside from its Alice in Wonderland aspects, the column has some practical utility.  For example, those credit unions considering taking the marijuana banking leap should assess the business’s tax compliance as part of its due diligence.  Credit unions should pay particularly close attention to beneficial owners.  As the Commissioner notes, a silent partner whose interest is not properly disclosed can bring down an otherwise legal marijuana business.  In addition, because these businesses are so cash intensive, proper CTR filing will always be an issue.

On that note, I hope to see some of you in cyberspace this morning as we kick off the first day of this year’s Legal and Compliance Conference.

September 28, 2021 at 10:01 am Leave a comment

Key Week for CUs and Congress

This may be the week when we find out if the Democrats’ spending plan will come to fruition or is destined to be the legislative equivalent of Novak Djokovic’s attempt to achieve the Grand Slam: a historic undertaking which crashed and burned.  Either way, the outcome could have important practical implications for your credit union.

For weeks now the Democrats have been touting the benefits of a $3.5 trillion spending plan and a closely related $1.5 trillion package of infrastructure upgrades. Telling people how you plan to spend money is the fun part of legislating; explaining to constituents whom among them is going to pay for the spending spree is quite another matter. Massachusetts Congressman Richard Neal, who chairs the Ways and Means committee was refreshingly honest in explaining over the weekend that he was reluctant to get too specific about paying for the proposals before getting a sense of what legislation could pass. House Democrats only have a three seat majority and he certainly does not want to be the person who makes vulnerable Democrats support controversial legislation which does not become law. This task became even more complicated when Senator Joe Manchin of West Virginia doubled down on his opposition to the size of the Democrat spending plan.

Nevertheless, several papers are reporting this morning that the Congressman has released a four page outline of legislation to pay for the plan so we are likely to see more specifics in the coming days.

According to CUNA, one proposal under consideration would help the IRS collect more taxes by imposing increased reporting requirements on financial institutions. Specifically, the IRS form 1099-INT would be expanded to include a report on the gross inflows and outflows of accounts and increase scrutiny of cash transactions. At this point, nothing has been formally put in writing but the proposal certainly sounds like one that would impose extensive new mandates on credit unions of all shapes and sizes. Imagine how much fun it would be parsing through proposed regulations in this area. Stay tuned.

Another budget issue under review this week involves increased funding for community development financial institutions.

David Baumann is reporting that today the House Financial Services Committee will be marking up legislation that would provide $10 billion to CDFIs to build or preserve more than one hundred and seventy thousand affordable homes.

September 13, 2021 at 9:34 am Leave a comment

What Not to Do With Those $600 Relief Checks

The IRS has already started sending out the $600 checks authorized as part of the long-awaited COVID relief stimulus (SEC. 6428A). With these payments has come an unprecedented level of scrutiny to deposit procedures and garnishments. Here are some of the key provisions to keep in mind.

Many of you have already begun to receive checks deposited via ACH. As Nacha explained, these payments “will be identified with a Company Name of ‘IRS TREAS 310’ and a Company Entry Description of ‘XXTAXEIP2’.” The real tricky part begins when this money actually hits your accounts. If you remember, certain financial institutions were criticized for setting off the first round of payments, and the new legislation is accompanied with prohibitions making it clear that this money is not to be garnished or set off. For instance, page 63 of the Administrative Provisions stipulates that these funds are not to be used to facilitate a levy or offset as a matter of federal or state law. 

I know for many of you that some of this is easier said than done. For instance, how are you going to handle the automatic actions taken by your systems on accounts that are already overdrawn? Last week, the New York Times highlighted the commitment of larger institutions to solve this problem by bringing their consumer accounts even for a limited period. For those of you who either do not want to or cannot take this step, I would consider putting a notice on your website explaining how members can obtain their stimulus payment.

January 5, 2021 at 11:03 am Leave a comment

Could The IRS Put Marijuana Companies Out Of Business?

Image result for tax manThese are the best of times and the worst of times for marijuana banking depending on if you want to view the glass half empty or half full. I’m definitely going with half empty.

For you optimistic types, we have the news that a credit union is proudly proclaiming itself the first to offer marijuana banking services catering to marijuana’s nascent recreational marijuana industry in Massachusetts where it has been legalized. I even heard a person being interviewed on Bloomberg Radio this morning saying that the emerging industry will put pressure on neighboring states to further loosen their marijuana laws in order to claim their piece of the pie. This is a direct shot at New York which has one of the most restrictive marijuana laws in the country.

Now for the bad news and there’s lots of it. There are growing signs that the IRS is emerging as a major roadblock to expanding the marijuana industry, even in states where it is legal and federal prosecutors have shown no inclination to move against marijuana related businesses operating legally under state law. The case that has gotten most of the attention is the Justice Department’s announcement that it has obtained a conviction against the Oregon operator of a marijuana business for not paying his taxes. But from what I’ve read about this case, this can be brushed aside as the Justice Department taking action against someone who simply neglected to pay his taxes.

But the publicity the case has received comes at a time when the IRS is taking a more aggressive stand against marijuana businesses and this could have a direct impact on your credit union even if you don’t wish to fund this industry. A decision in July by the Court of Appeals for the 10th Circuit (Alpenglow Botanicals, LLC v. United States, 894 F.3d 1187 (10th Cir. 2018)), which has jurisdiction over the mile high state of Colorado, upheld a decision by the IRS refusing to recognize deductions taken by a legal marijuana related businesses because the business was violating the Controlled Substances Act. In the closely watched case, the business in question argued that the IRS could only deny a deduction for violating the CSA following a criminal conviction, but the court made clear that the IRS has independent authority to make this finding and deny deductions for businesses engaged in drug trafficking.

They also argued that the IRS overstepped its authority. Taxable income is defined for tax purposes as gross income minus deductions allowed by law (26 USC 63(a)). They argued that the deductions were legal because their businesses were legal. The problem is that federal tax deductions are a matter of “legislative grace” the court concluded and that by refusing to allow drug traffickers to take deductions for the everyday expenses of running their businesses, Congress had clearly decided that such companies are not entitled to take deductions.

This is yet another example of how many issues credit unions considering working with marijuana businesses or even opening accounts for employees of such business need to take into consideration. For example, there is now case law in which bankruptcy judges have invalidated settlements because trustees could not be made to distribute funds resulting from illegal activities (re [Jerry] Johnson, 532 B.R. 53 (Bankr. W.D. Mich. 2015). The bottom line is there are many issues and moving parts you have to analyze, in addition to assessing the likelihood that the Justice Department will begin prosecuting legal MRB’s.

September 20, 2018 at 9:01 am Leave a comment

Employers Given Feb. 15 Deadline To Update Tax Tables

Hello folks,

This morning I’ve decided that the most important thing I can tell you about is a change to the  tax table.   Take some coffee; here goes.

Moving at the speed of a midterm election, the Trump Administration yesterday unveiled new withholding tables to be used by employers no later than February 15 2018.  The tables reflect the rate changes made in the tax cut legislation passed by Congress in December. Many voters, I mean employees, wouldn’t otherwise see the direct benefit of the tax cuts until they file their tax returns next year.

The W-4 is the form you filled out when you started your job in which you indicated the federal income tax you wanted withheld from your paycheck. You might not have bothered looking at it since then and you should take this opportunity to review your withholdings and see if it is time to make some changes. In a reflection of just how quickly the Treasury Department wants people to see the impact of tax reform on their paychecks, the IRS is coming out with the withholding tables even as it has not completed an update to the W-4.

It’s not clear to me what would happen to employers who don’t update their withholding by the deadline. In a press release the IRS says that employers “should continue to use the 2017 withholding tables until implementing the 2018 withholding tables.” But by publicizing these changes don’t be surprised to see a lot of employees giving their paychecks extra scrutiny in the coming weeks.

By the way, for those of you watching the football game on Saturday night don’t turn the game on late. It’s going to be over awfully quick.



January 12, 2018 at 9:09 am Leave a comment

Why Don’t People Care About Cyber Security?

There are an increasingly large number of examples of  America  changing from a “Can do” to a “Can’t do” or “Won’t do” nation.

The latest example is the news that “more than twice as many taxpayer accounts were hit by identity thieves than the agency first reported, with hackers gaining access to as many as 330,000 accounts and attempting to break into an additional 280,000.” (WSJ  Many of you will undoubtedly deal with  the consequences of these breaches first hand.

The IRS’s underbelly is its system for accessing consumer tax information online.   We learned earlier this year that hackers had broken into the system and gained access to taxpayer info but what we learned yesterday was that the break in was much more extensive and far-reaching than the IRS first believed.  The type of information the hackers gained access to is ideal for establishing a fake identity. It potentially includes   line-by-line tax return information and income reported to the IRS.

(The IRS points out on its website that the break ins underscore the need for consumers to “think twice before posting publicly personal or financial information on social media or the Internet.”  As someone who proudly doesn’t have a Facebook account this last bit of advice makes sense to me but I’ve given up thinking that people can be kept from informing  hundreds of their closest friends  about how they are getting through their day.)

It used to be that when America was confronted with great challenges it confronted them head on.  I’m thinking of the Erie Canal, WW II and the Race to the Moon just to name a few. In contrast, where is the resolve to truly confront cybersecurity threats? According to Frank Abagnale  Jr. of “Catch Me If You Can” fame, who spoke at the Association’s convention a few months ago,  there are things that the government could do but isn’t doing to better protect the American public’s information.

And there is much more going on here than bureaucratic inertia.    Congress still hasn’t passed meaningful cybersecurity legislation that breaks down barriers to information sharing and makes all industries, not just financial service providers, legally responsible for guarding against cyber theft.

Meanwhile the American public seems indifferent to the chronic invasion of its privacy by hackers.  If terrorists compromised our computer networks as successfully as the Chinese have there would be calls for sanctions, Congressional hearings would be held and presidential candidates would be questioned about more important things than what they think of  Donald Trump.  Stories about cyber break-ins hardly get noticed for more than a day or two.

Cyber crime makes every business less efficient and more expensive to run.  It makes every consumer vulnerable to theft and makes us all less safe.  Can it be prevented? Not entirely but it certainly can be deterred.

In the meantime regulators continue to prod banks and credit unions to prioritize cybersecurity even though the best efforts of every financial institution won’t solve a thing in the absence of a comprehensive government led defense to protect our personal information.

So it goes.

August 18, 2015 at 9:27 am 1 comment

Are You Prepared For The Next Disaster?

Hurricanes be damned, the IRS still expects to be paid. So, recently the IRS released this handy little tip sheet outlining steps that individuals and businesses can take to make sure that their vital tax information is protected if and when a storm or other disaster strikes.

With so many businesses outsourcing their payroll processing now, one tip that caught my eye was the suggestion that businesses check to see that their payroll provider has a fiduciary bond in place.  And, of course, the IRS reminds us that emergency plans should be updated.

One of the really big challenges facing credit unions, and all businesses for that matter, is that there are so many regulations being thrown at them that it is easy to forget the ongoing obligations that were imposed just a few years ago.  I’m sure many of you know that Appendix B to Part 749 of NCUA’s regulation requires credit unions to prepare for a catastrophic act.

I’m also sure many of you can pull out a policy or program adopted by your credit union in response to this requirement.  But how many of you have done annual testing or updated the plan?  I know you are all busy, but if you can find the time, you might save some much needed money and prevent operational headaches the next time the storm of the century hits.

On that note, your faithful blogger is headed to North Carolina to watch a few rounds of the U.S. Open in Pinehurst courtesy of a good friend’s tickets and his own sister’s hospitality.  Look for another post a week from Monday.  In the meantime, in the immortal words of George Costanza, I’m sure you could use the break.

June 6, 2014 at 8:08 am Leave a comment

3 Facts to Ponder on a Friday Morning

images1.  IRS announces new withholding rules.  The IRS came out with guidance yesterday reminding employers that they should begin withholding the Social Security Tax at the rate of 6.2 % of wages paid now that the temporary 2 % payroll tax cut in effect for the last two years has expired.  They should start doing so as soon as possible, but no later than February 15, 2013.  This is one of the most bizarre aspects of the whole fiscal cliff debate.  On the one hand, Congress and the President decided to keep income tax rates lower for the vast majority of tax payers, but neither party did anything to save a tax cut that almost all Americans have to pay.

2. Next week is shaping up as a big week for regulations.  Both NAFCU and CUNA anticipate that the CFPB may start rolling out the mortgage regulations mandated by Dodd-Frank and NCUA has a board meeting scheduled for next Thursday.  The agenda includes finalizing a regulation giving NCUA the authority to independently determine that a state chartered credit union is “troubled.”   Another proposal under consideration would change the definition of a “small” credit union from one with $10 million or less in assets to one with $30 million or less.  The change is significant because these credit unions are eligible for exemption from certain regulatory requirements.

3.  Much ado about nothing?  Wall Street reacted negatively to the release of the December minutes of the Federal Reserve Board’s Open Market Committee.  The minutes indicated that some members are willing to pull the plug on the FED’s aggressive bond buying program as early as the end of 2013.  But Wall Street’s reaction to this news reminds me of what the great Boston Celtic center Bill Russell said about fans:  they don’t think, they react.  It shouldn’t surprise anyone that some members of the FED think that the bond buying program should be ended sooner than later.  However, a review of the minutes demonstrates a consensus that the economy is weak but growing.  In its December statement, the FED explicitly linked the continuation of the bond buying program to an inflation rate of 2.5% and an unemployment rate falling to at least 6.5%.  If either or both of those triggers are reached, then the FED will take action irrespective of when these thresholds are actually met.

January 4, 2013 at 7:32 am Leave a comment

Unreasonable Accomodation?

Everyone knows that the Americans with Disabilities Act (ADA) is designed to make employers provide reasonable accommodations to disabled employees otherwise capable of doing the job.  But since its inception in 1990, the courts have been vexed by two basic questions.  What exactly is a disability and what exactly is reasonable?  If press reports are accurate, it appears that the Equal Employment Opportunity Commission will be taking another crack at this issue tomorrow when it holds a public meeting to discuss strengthening existing guidance. 

As far as I know, nothing has been released yet, but the proposal already has the Wall Street Journal editorial page in a foamed-mouth frenzy this morning. Its  Reporting that the EEOC is considering requiring employers to, among other things, determine whether an employee’s conduct is a manifestation of his or her disability before deciding on appropriate discipline.  Ironically, the ADA was amended in 2008 to put the focus of the Legislation not so much on whether someone has a disability but on the type of accommodation to which that person should reasonably be entitled.  But let’s keep in mind that even with the clearest guidelines, the legal issues are ultimately going to be as unique as the person seeking employment.

New IRS Reporting Requirements Announced

Last week, the IRS published a final rule which will require credit unions and other financial institutions to annually report deposit interest paid to nonresident aliens.  Currently, this requirement only applies to Canadians.  The requirement took effect April 19, 2012 with the first required reports due in 2014 covering interest paid next year.

April 24, 2012 at 7:36 am Leave a comment

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Authored By:

Henry Meier, Esq., Senior Vice President, General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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