Partner Profile: Bryan McDonald and CPAMD

https://medbooksolutions.com/partner-profile-bryan-mcdonald-and-cpamd/

by Kimberlee Gould | Mar 3, 2021 | Uncategorized

In a new series here on our blog, we are going to highlight and feature some of our most trusted partners, friends and associates. These annual features will help to shine a light not only on what these others firms and people can offer, but also what makes them unique in their space and how they can further aid our clients.

First up is a longtime friend of Medbook, Bryan McDonald and his team at CPAMD. Boasting over three decades of experience and offices in Illinois, Montana, California and Massachusetts, CPAMD is a certified public accounting firm that has been built upon long-lasting client relationships and personalized service.

Similar to our mission and clientele, CPAMD has put a focus on aiding cannabis clients over the last decade as state regulations have changed across the country. McDonald’s firm currently works with over 70 cannabis clients nationwide and has put a focus on 280E tax strategies and mitigation as well as overall aid to those working in the quickly growing industry.

McDonald serves as the Client Development Partner and travels across the country meeting with clients as well as attending most National Cannabis Industry Association events to share his experience and knowledge while serving as a fierce advocate for reducing the significant taxation on the field.

CPAMD also aids companies with entity and LLC formation, payroll services, licensing, business valuations, inventory management, peer reviews, audits, multistate returns, mergers and acquisitions and much more. However, as the marijuana space has continued to grow at a meteoric rate, CPAMD has embraced helping those in that industry, even featuring a marijuana leaf in their current logo.

“You know we started this firm 33 years ago so we’ve obviously developed a lot of great relationships with non-cannabis businesses over the years that we’re extremely proud of,” McDonald explained. “We’ve now been in the cannabis space very heavy for almost ten years which is frankly a lifetime in this space.”

McDonald estimates that CPAMD’s clientele is currently comprised of 55% non-cannabis and 45% cannabis. They have cannabis clients in 33 states – every state that has currently legalized marijuana is some capacity.

“We firmly believe that it will be legal in every state eventually. There’s just way too much revenue,” McDonald explained. “This industry tests you, you really have to be on top of your game. But it’s also very refreshing in so many ways because people in this industry just have so much enthusiasm. It is definitely filled with a lot of younger people who are engaged and passionate about the cannabis industry. Cannabis is much more interesting than normal tax preparation for sure but it comes with plenty of challenges.”

One of the main hurdles that McDonald helps cannabis businesses with is the specific tax code that covers their industry, 280E. In 1981 a drug dealer battled the IRS on what he could specifically deduct, including transportation and protection of illicit goods. The case was taken to court and the dealer got the upper hand to deduct his expenses, much to the chagrin of the IRS and federal government. In response, Congress passed sweeping regulation the following year that heavily restricts any business that deals in Schedule I and II narcotics from claiming any expenses on their tax bill.

So, roughly forty years later while marijuana has been legalized in many states it is still deemed a Schedule I narcotic by the federal government. Therefore, a shop selling cannabis products cannot claim and utilize the same benefits and credits that a ‘normal’ business can.

“It’s really bizarre, outdated and ultimately unconstitutional in my opinion,” McDonald said of 280E. It puts weed and something like heroin on a level playing field. It really puts cannabis businesses in a bind. You can have a bakery next door that can claim expenses like marketing, transportation and other overhead but the cannabis shop that operates in a very similar manner cannot use those same things. When they can’t make these same deductions, it can result in nearly a 75% tax bracket where there is simply not a lot left over. If a start-up sees this, why even get into the industry?”

“We understand what we’re doing and are able to find ways to bring that down, sometimes as low to 60%. That 15% savings can be enormous,” McDonald remarked. “We see what comes across our desk and have the know-how to really make a difference. There are other CPAs out there that have no business in this industry and file returns just like any other company. Unfortunately, that can get clients in a lot of trouble and really set them up for failure. Where we shine is our knowledge. This is probably the most complicated and interesting work that I’ve done in my entire career.”

Similar to the motto that we constantly preach at Medbook with our clients, McDonald said his firm is committed to clients and views themselves as a true extension of their team. They utilize a ‘we’re in this together’ approach to every single partnership and stress loyalty and service.

“CPAs are generally not known as the most glamorous people to work with,” McDonald said with a laugh. “But we make sure to return every phone call and always stay in touch. We’re always looking out for our clients. We firmly believe that everyone has a legal right to limit their income tax liabilities as much as possible, not simply try to evade them. We fervently commit to that, especially when you’re facing an unfair rate as high as 75%.”

McDonald is married and lives in Wisconsin. He has five sons, three of whom serve in the military, and is step-father to two more boys and two girls. He enjoys his family, playing the guitar and has completed three IronMan races.

Thinking about Relocating? Learn about Tax-Friendly…or Not States from Kiplinger

Click on links below for:

State-by-State Guide to Taxes

10 Most Tax-Friendly States

10 Least Tax-Friendly States for Middle Class Families 

12 States That Won’t Tax Your Retirement Income

Retiree Tax Map to learn how each state taxes different kinds of retirement income and to discover special tax breaks for seniors.

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10 TAX FRIENDLY STATES:

Kiplinger’s annual State-by-State Guide to Taxes shows, state tax rates are literally all over the map—and the difference between living in a high-tax or a low-tax state can be thousands of dollars each year, depending on your tax situation. To help you determine how big of a tax bite each state would take out of your hard-earned cash, they estimated the tax burden in each state for a hypothetical married couple with a combined earned income of $150,000, $10,000 in dividend income, two dependents and a $400,000 home (with a mortgage).

Based on Kiplinger’s findings, here is their list of the 10 most tax-friendly states in the U.S. for 2019 (starting with the most-friendly state). If you're taking a job in another state, or relocating for other reasons, you'll want to check it out to see if your state taxes are likely to go up or down after the move.

1. Wyoming

STATE INCOME TAX: None

EFFECTIVE INCOME TAX RATE: 0%

AVERAGE STATE AND LOCAL SALES TAX: 5.32%

AVERAGE PROPERTY TAX: $635 per $100,000 in home value

GAS TAXES AND FEES: 24 cents per gallon

GO TO WYOMING'S FULL STATE PROFILE One reason why Wyoming tops our tax-friendly list is because generous revenues from mineral and energy extraction continue to flow into the state. That allows the Equality State to keep taxes on residents low across the board. There is no income tax in Wyoming, and its gas tax is well below the national average of 31.7 cents per gallon. The state's combined state and average local sales tax rate is also the third-lowest of all the states with a sales tax. And at 2 cents per gallon, Wyoming has the lowest beer tax in the U.S. People who move to these parts like to own a lot of land, and low property taxes make that dream affordable. The property tax on our hypothetical couple's $400,000 home in Wyoming would be about $2,540, which is the ninth-lowest amount in our rankings.

2. Nevada

STATE INCOME TAX: None

EFFECTIVE INCOME TAX RATE: 0%

AVERAGE STATE AND LOCAL SALES TAX: 8.14%

AVERAGE PROPERTY TAX: $693 per $100,000 in home value

GAS TAXES AND FEES: 33.78 cents per gallon

GO TO NEVADA'S FULL STATE PROFILE The Silver State is another no-income-tax haven. Property taxes in Nevada are below-average, too—estimated to be only $2,771, on average, for a $400,000 home. Nevada receives more than $1.5 billion in taxes and fees annually from the hotel-casino industry. Still, Nevada relies heavily on sales taxes to pay the bills. The average combined state and local sales tax rate is 8.14%, which is tied with Missouri for the 14th-highest in the nation. In addition to sales taxes, vehicle owners are charged an annual "governmental services tax" that's based on the vehicle's value and age. The tax on a two-year-old vehicle with an original sticker price of $20,000, for example, is $238. Gas taxes in Nevada are slightly above the national average of 31.7 cents per gallon. However, according to the Tax Foundation, the state has the third-lowest average tax on cellphone wireless services—only 3.27%.

3. Tennessee

STATE INCOME TAX: 2% on interest and dividends

EFFECTIVE INCOME TAX RATE: 0%

AVERAGE STATE AND LOCAL SALES TAX: 9.47%

AVERAGE PROPERTY TAX: $768 per $100,000 in home value

GAS TAXES AND FEES: 27.4 cents per gallon

GO TO TENNESSEE'S FULL STATE PROFILE There's no broad-based income tax in the Volunteer State—only interest and dividends are subject to Tennessee's limited income tax. The first $1,250 in taxable income for individuals ($2,500 for joint filers) is also exempt from the 2% (for 2019) tax, and it's waived if you're at least 100 years old. Plus, the tax is being phased out at a rate of 1% per year. So it will be completely eliminated by 2021. Property taxes in Tennessee are reasonable, too. Expect to pay only about $3,072 per year for a $400,000 home, which is well below the national average. Gasoline taxes are below-average in Tennessee as well. You'll pay 27.4 cents per gallon to the state when you fill up your tank. Tennessee sticks it to you when you're shopping, though. At 9.47%, its average combined state and local sales tax rate is tied for the highest in the nation, according to the Tax Foundation. Tennessee also has the highest beer tax in the country—$1.29 per gallon. That's a real buzzkill!

4. Florida

STATE INCOME TAX: None

EFFECTIVE INCOME TAX RATE: 0%

AVERAGE STATE AND LOCAL SALES TAX: 7.05%

AVERAGE PROPERTY TAX: $1,041 per $100,000 in home value

GAS TAXES AND FEES: 41.99 cents per gallon

GO TO FLORIDA'S FULL STATE PROFILE Florida has no income tax, which keeps the overall state and local tax burden down. However, other taxes in the Sunshine State are average, or even above-average, when compared to other locations. Property taxes, for instance, are right around the national average. For a $400,000 home in Florida, the average annual property tax bill will be about $4,166. The state's average combined state and local sales tax rate is middle-of-the-road, too. It's 7.05%, according to the Tax Foundation. Vehicles are taxed at the state's 6% sales tax rate, but a county sales tax (based on where the buyer lives) may also be due on the first $5,000 of the purchase price or on each lease payment. The gas tax in Florida is very high. At 41.99 cents per gallon, it's the 10th-highest state tax on gasoline in the country.

5. Alaska

STATE INCOME TAX: None

EFFECTIVE INCOME TAX RATE: 0%

AVERAGE STATE AND LOCAL SALES TAX: 1.76%

AVERAGE PROPERTY TAX: $1,234 per $100,000 in home value

GAS TAXES AND FEES: 14.66 cents per gallon

GO TO ALASKA'S FULL STATE PROFILE Gas taxes in the Last Frontier are the lowest in the U.S., and Alaskans pay no state income taxes or state sales taxes. While municipalities can impose local sales taxes as high as 7.5%, the average sales tax is 1.76%, according to the Tax Foundation. Anchorage, Alaska's largest city, has no sales tax. If our hypothetical couple were to purchase a $400,000 home in Alaska, their estimated property tax bill would come to about $4,936 per year. That's above the U.S. national average. There's one other thing about living in Alaska that's worth noting: Alaska gives each legal resident who has lived in the state for a full year an annual "Permanent Fund Dividend." The 2019 dividend will be $1,606. (The highest payment ever was $2,072 in 2015.)

6. Washington

STATE INCOME TAX: None

EFFECTIVE INCOME TAX RATE: 0%

AVERAGE STATE AND LOCAL SALES TAX: 9.21%

AVERAGE PROPERTY TAX: $1,125 per $100,000 in home value

GAS TAXES AND FEES: 49.4 cents per gallon

GO TO WASHINGTON'S FULL STATE PROFILE Washington makes this list of the most tax-friendly states because it doesn't have an income tax. Unfortunately, some of the other state and local taxes in the Evergreen State aren't quite so taxpayer friendly. The Tax Foundation's average combined state and local sales tax rate for Washington is the third-highest in the country. The state's gasoline tax is the fourth-highest in the nation. At 19.41%, Washington also has the third-highest average state and local cellphone wireless service tax in the U.S. Washington is also one of a handful of states with an estate tax. For 2019, it's imposed on estates worth more than $2,193,000. The estate tax rates range from 10% to 20%. Property taxes in Washington are more modest. For a $400,000 home, the average tax bill in the state will run you about $4,499 per year, which is close to the national average.

7. South Dakota

STATE INCOME TAX: None

EFFECTIVE INCOME TAX RATE: 0%

AVERAGE STATE AND LOCAL SALES TAX: 6.4%

STATE INCOME TAX: None

EFFECTIVE INCOME TAX RATE: 0%

AVERAGE STATE AND LOCAL SALES TAX: 6.4%

AVERAGE PROPERTY TAX: $1,388 per $100,000 in home value

GAS TAXES AND FEES: 30 cents per gallon

GO TO SOUTH DAKOTA'S FULL STATE PROFILE You'll need to bundle up during South Dakota's winter, but because you don't have to pay state income taxes here, maybe you can afford to fly south for a couple of weeks in January. South Dakota's combined state and local sales taxes are about average for the U.S. However, while prescription drugs are exempt from sales taxes, food, over-the-counter drugs and many services are taxed in the Mount Rushmore State. Gas taxes are in the middle of the pack nationally, too. Property taxes in South Dakota are above average for the U.S. For a $400,000 house in the state, the average property tax bill comes to about $5,551.

8. North Dakota

STATE INCOME TAX: 1.1% (on taxable income of $39,450 or less for single filers; $65,900 or less for joint filers) — 2.9% (on taxable income over $433,200)

EFFECTIVE INCOME TAX RATE: 1.1% for single filers; 1.58% for joint filers

AVERAGE STATE AND LOCAL SALES TAX: 6.85%

AVERAGE PROPERTY TAX: $1,056 per $100,000 in home value

GAS TAXES AND FEES: 23 cents per gallon

GO TO NORTH DAKOTA'S FULL STATE PROFILE The Peace Garden State imposes only modest sales taxes that favor agriculture (new farm machinery is taxed at only 3%), and its income tax rates are relatively minuscule, even for high earners. Property taxes in North Dakota are just above the national average. The tax on a $400,000 home owned by our hypothetical couple is estimated to be $4,223 per year. At 23 cents per gallon, gas taxes in North Dakota are well below the national average of 31.7 cents per gallon.

9. Arizona

STATE INCOME TAX: 2.59% (on taxable income of $26,500 or less for single filers; $53,000 or less for joint filers) — 4.5% (on taxable income of over $159,000 for single filers; over $318,000 for joint filers)

EFFECTIVE INCOME TAX RATE: 2.77% for single filers; 3.24% for joint filers

AVERAGE STATE AND LOCAL SALES TAX: 8.39%

AVERAGE PROPERTY TAX: $754 per $100,000 in home value

GAS TAXES AND FEES: 19 cents per gallon

GO TO ARIZONA'S FULL STATE PROFILE For 2019, Arizona's top income tax rate of 4.5% doesn't kick in until taxable income exceeds $159,000 for single filers or $318,000 for married couples filing jointly. That's not a very high top rate to begin with, and having a fairly high threshold for that rate means that relatively few people will be taxed at the state's highest rate. The state-wide average property tax on a $400,000 home in Arizona is only $3,014 per year, which is below average for the U.S. And at 19 cents per gallon, state gas taxes are well below the national average. Like most states, the Grand Canyon State excludes prescription drugs and food for home consumption from state sales taxes. However, all 15 counties levy additional taxes, as do many municipalities, and some jurisdictions extend their taxes to groceries. The average combined state and local sales tax rate is 8.39%, the 11th-highest in the U.S., according to the Tax Foundation. While the gas tax is low, car owners must pay an annual vehicle license tax. The tax is based on an assessed value of 60% of the manufacturer's base retail price, reduced by 16.25% for each year since the vehicle was first registered in Arizona. The rate is $2.80 for new vehicles and $2.89 for used vehicles, for each $100 of assessed value. For example, for a new vehicle that costs $25,000, the assessed value in the first year would be $15,000 — and the corresponding license tax would be $420.

10. New Hampshire

STATE INCOME TAX: 5% on interest and dividends

EFFECTIVE INCOME TAX RATE: 0%

AVERAGE STATE AND LOCAL SALES TAX: 0%

AVERAGE PROPERTY TAX: $2,296 per $100,000 in home value

GAS TAXES AND FEES: 23.83 cents per gallon

GO TO NEW HAMPSHIRE'S FULL STATE PROFILE Like Tennessee, New Hampshire has a very limited income tax that only applies to dividend and interest income. There's no sales tax in the Granite State, either. New Hampshire residents also don't pay too much state tax at the pump. At only 23.83 cents per gallon, the state's gasoline tax is well below the national average. Local governments in New Hampshire dig deep into your pocket for property taxes, though. If our hypothetical couple were to purchase their $400,000 home in the state, we estimate that their annual property tax bill would be a whopping $9,186. That's the third-highest estimated amount in our rankings for a home with that price point.  

Tax Breaks Rejected by the IRS...Nice try though!

Here is a nice article by Kiplinger’s about creative ideas that just don’t fly with the IRS. Be aware, don’t try this at home! :)

15 Nice-Try Tax Breaks Rejected by the IRS 

1. A Novel Idea Doesn't Fly

A successful author who wanted to pay less self-employment tax claimed that a large chunk of the money she got from contracts with publishers and reporters was for the use of her name and likeness. She then reported that portion as investment income on Schedule E of her 1040 (and not as earnings from self-employment, which are generally reportable on Schedule C). The Tax Court didn't buy her argument, saying that her brand was part of her business as an author. The contracts she entered into with the publishing company didn't specifically allocate payments for her name and likeness, and it's common for authors to build their brands and promote their work. She owed self-employment tax on all her income, much to her dismay.

2. A Little Peace and Quiet

A busy tax preparer ran her business from her home. During tax season, she felt so harassed from clients calling her at all hours of the day and night that she occasionally booked a room at a local hotel for some peace and quiet. On her own return, she deducted the cost of this rest and relaxation as a business expense. Unfortunately for her, the Tax Court ruled that the cost of her good night's sleep was a nondeductible personal expense.

3. Investigating Daddy's Mysterious Death

A CPA paid millions of dollars to private investigators and other experts to help him find out whether his father, who died when the taxpayer was a child, was murdered or committed suicide. He deducted the payments on Schedule C as business expenses. He believed that if he gathered enough evidence, the story could become a book or even a movie. The Tax Court categorized his activity as a hobby and nixed the write-off.

4. My Little Princess

A couple's daughter began competing in beauty pageants at age 9. She won between $1,000 and $2,000 in prize money each year that was deposited into her college savings account. The parents reported the income on their returns and also took large write-offs for the cost of travel, costumes and other expenses.

Because the prize winnings were compensation for the child's services in the pageant, they are included in her income. And only she can deduct the costs, even though the expenditures were made by the parents. So the Tax Court denied the parents' deductions.

5. Pizza for the Kids

A woman in Washington, D.C., ran her own staffing and consulting business. She hired her three children, ranging in age from 8 to 15, to help her with jobs such as shredding, stuffing envelopes, copying and tending the yard around her home office.

The mother, who was also a paid tax preparer, included the hours her kids worked on time sheets and issued them W-2 forms.

But instead of paying her children in cash, she bought them meals, including pizza, and paid for tutoring. She tried to deduct the kids' "wages" as business expenses, but the Tax Court didn't buy it. In its view, the services that the children performed were more for parental training and discipline than part of the typical activities of employees, so it denied her write-off in full.

6. Love & Marriage & Self-Employment Tax

A married couple operated separate proprietorships. The wife's operation turned a small profit, but her husband's business generated a sea of red ink. When figuring their self-employment tax bill, the couple claimed the bonds of matrimony allowed them to offset his loss against her income to wipe out any self-employment tax liability.

The IRS disagreed, saying that even though they were married, his losses could not be used to reduce the self-employment tax bill on her income. Playing the referee in this tax dispute, the Tax Court sided with the IRS because the husband had no hand in running her firm. "The fact that they discussed their respective businesses over meals does not establish that [the husband] played a role in operating the realty business," the ruling noted.

7. Payment for an Affair

After a police officer discovered his wife was having an affair with her doctor, he confronted the doctor and threatened a lawsuit. Eventually, the doctor agreed to pay $25,000 to settle the matter. The police officer claimed the $25,000 was a tax-free gift, but the Tax Court said that the payment is taxed as income because it was offered to settle the doctor's misconduct.

8. Prostitutes and Porn

A tax lawyer spent more than $65,000 in a year on prostitutes and pornographic materials. He deducted the total as a medical expense, making a novel argument that cited the positive health effects of sex therapy.

However, the Tax Court red-lighted his write-off, saying that his conduct not only was illegal, but also wasn't for the treatment of a medical condition.

9. Overdone Overdrafts

A couple who owned two struggling dry-cleaning businesses couldn't get a loan from their bank because they were judged to be a bad credit risk. But they worked out a deal to regularly overdraw their account and then satisfy the overdraft after the bank called them. This odd financing method caused them to incur more than $30,000 a year in overdraft charges, which they deducted as a business expense.

This didn't wash with the Tax Court, which nixed the write-off, saying the charges were unreasonably high. Not surprisingly, the pair wound up filing for bankruptcy.

10. Billing Mommy

A wife was sent to jail for killing her husband. Although she was named as the primary beneficiary of his 401(k) plan, state law barred her from receiving any of the funds because of her crime. So the account was paid to their son instead as the secondary beneficiary. He claimed that his mother should be taxed on the payout as the intended beneficiary. An Appeals Court gave him an A for effort but an F in taxation, ruling that he owes tax on the distribution.

11. Lunch with Cohorts

A partner in a law firm met every day with his colleagues at lunch to discuss the firm's business, such as case assignments and settlements. But the IRS balked when he asked Uncle Sam to pick up part of the tab. The Tax Court came down on the IRS' side, saying that the cost of the meals was a non-deductible personal expense, even though business was discussed. The moral of the story is that while the partner can have his cake and eat it for dessert, he can't get a subsidy from other taxpayers for his meals.

12. A Fish Tank

A couple's tax returns were filed late and were riddled with questionable deductions, such as the cost of dining room furniture and a fish tank. That piqued the IRS's attention. After an audit, the couple was slapped with a late-filing penalty and a big tax bill. They claimed that their late filing should be excused because their accountant had been sent to jail for killing her husband and the person who took over her office was incompetent. The Tax Court refused to cut them any slack.

13. Red Blood Cell Depletion Allowance

A woman with a rare blood type made more than $7,000 in a year as a blood plasma donor. She sought to offset the income by claiming a depletion deduction for the loss of both her blood's mineral content and her blood's ability to regenerate.

While depletion is a proper write-off for firms that remove natural deposits of minerals such as coal and iron ore from the ground, the Tax Court decided that individuals cannot claim depletion on their bodies.

14. A Trophy Collection

Large charitable deductions are one way to attract IRS attention (especially when they're so big that they have to be claimed over multiple years.) If they're in the form of non-cash contributions, where the question of "what's it worth?" is at stake, the likelihood of an audit goes up.

Claiming a $1.43 million write-off for animal hides, skulls, horns and other hunting specimens he donated to charity is how a big-game hunter found himself in the crosshairs of the IRS. The hunter claimed there was no way to determine a market price for his "museum quality" collection and based his deduction on what it would cost to replace them—that is, to return to Africa and the other locales where he'd hunted these trophies, shoot more animals, and ship them home.

The IRS objected, allowing a deduction of $163,045. In court, a variety of experts on taxidermy presented testimony. Ultimately, the Tax Court was convinced by the IRS's expert, who testified that there had "always been a market" for such items, and that, in any case, the donated items were just "remnants and scraps" worth a fraction of what the hunter claimed; in fact, far less than the IRS was willing to let him take.

15. Letting Others Burn Down the House

Homeowners who want to tear down their homes and rebuild sometimes ask firefighters to burn them down. This training exercise serves the public good. But to get a deduction, an Appeals Court says that the homeowner must show that the value of the donation exceeded the value of the demolition services provided. Since the house in the case before the court had to be destroyed anyway to make room for its successor, its value was negligible and didn't exceed the value of the demolition services that the owners received, so the homeowner's charitable deduction was denied.

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/

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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.