The Taxation of Legal Cannabis Part 4: California State Income Tax

This article marks the end of this series’ emphasis on income tax. After introducing section 280E’s confiscatory effect, identifying the need for cannabis enterprise to maximize cost of goods sold adjustments (hereinafter “COGS”) and to diversify the enterprise’s business lines, I will conclude this discussion by describing California’s bifurcated state income tax treatment of cannabis enterprises.

Despite California’s long-standing legalization of medical cannabis,[1] California’s Revenue and Taxation Code (hereinafter the “California Code”) is silent on the income tax treatment of enterprises dealing in cannabis. Reasonable people might expect the state’s income tax treatment of such enterprise to be less punitive than the federal government’s because medical cannabis is legal in the state. Unfortunately, this is untrue. California’s income tax treatment of such enterprises turns on whether the enterprise is taxed as an individual or a corporation. Indeed, the taxpayer friendly structure may surprise readers.

In California, tax treatment for cannabis enterprises turns on whether or not the enterprise is taxed as a corporation. Entities that are not structured to be taxed as corporations are ordinarily subject to California’s personal income tax. For personal income tax, the California Code conforms to Internal Revenue Code (hereinafter “IRC”) Subtitle A, Chapter 1, Subchapter B, Part IX.[2] In general, IRC Part IX lays out disallowed income tax deductions. These disallowances include section 280E. Thus, cannabis enterprises subject to the personal income tax part of the California Code cannot deduct their necessary and ordinary business expenses. Businesses ordinarily subject to this part include those that are organized as sole proprietorships, partnerships, limited liability companies (LLCs) who elect to be taxed as partnerships, and trusts.

It can get even worse for these businesses. As I explained before, IRC section 280E permits COGS adjustments. The California Code, however, may disallow COGS adjustments under certain conditions. The California Code disallows COGS, among other, deductions in computing taxable income to any taxpayer who derives his or her income from “criminal profiteering activity” but only if the taxpayer was determined to be engaged in such activities.[3] “Criminal profiteering activity” includes trafficking in controlled substances.[4] But for this limitation to apply, a final determination in a criminal proceeding, or in a proceeding where the state, county, city or other political subdivision was a party must first determine that the taxpayer engaged in these activities.[5] In this scenario, the California Franchise Tax Board and State Board of Equalization must disallow COGS to these taxpayers.[6] As a result, California’s tax treatment may be even more punitive than the federal tax treatment.

By contrast, Part 11 of the California Code, which governs taxation of corporate entities, does not contain a conforming statute like the one under the personal income tax. Section 280E’s force does not apply to California entities taxed as corporations with respect to their California state income tax. Thus, entities taxed as corporations may deduct their necessary and ordinary business expenses from gross income to calculate taxable income due to California.

Scrupulous cannabis enterprises taxed as corporations should nevertheless beware. The part of the California Code governing taxation of corporations contains an identical statute that disallows all deductions from gross income to corporations determined to be engaged in illegal trafficking of controlled substances.[7] Absent such a determination, cannabis enterprises taxed as corporations ought to be able to deduct necessary and ordinary business expenses where similar enterprises not structured to be taxed as corporations cannot.

In short, to avoid section 280E’s force for the purposes of California income tax, cannabis enterprises should consider structuring themselves to be taxed as corporations under the California Code. Such businesses should be permitted to deduct their necessary and ordinary business expenses on their California income tax. This tax advantage disappears if such cannabis enterprises are determined to be engaged in illegal activities in a criminal court or other proceeding in which the state, county, city or other political subdivision was a party.


[1] See Cal. Health & Safety Code § 11362.5; see also id. § 11362.7, et seq.

[2] See Cal. Rev. & Tax. Code § 17201(c).

[3] See id. § 17282(a)-(b).

[4] See id. § 17282(a); Cal. Penal Code § 186.2(a)(17). Bear in mind that trafficking in controlled substances is merely one of many “criminal profiteering activit[ies]” that a cannabis enterprise can engage in to trigger this limitation.

[5] See Cal. Rev. & Tax. Code § 17282(b).

[6] See id.

[7] See id. § 24436.1(a)-(b).

The Taxation of Legal Cannabis Part 3: Allocating Expenses to a Separate Line of Business

I finished Part 2 of this series emphasizing section 280E’s principle force. Section 280E does not universally bar illegal commercial enterprises from deducting necessary and ordinary business expenses. Rather, section 280E only applies to businesses trafficking in substances banned under the Controlled Substances Act. The key takeaway from this distinction is that taxpayers can engage in another business and not be subject to section 280E with respect to that business.[1] Thus, state-sanctioned cannabis businesses can improve their tax situation by conducting other activities, like counseling or caregiving, within the same entity if they can demonstrate that these activities constitute separate businesses.[2]

Case law and treasury regulations underscore the well-established principle that a taxpayer can have more than one trade or business.[3] The tax court in Californians Helping to Alleviate Medical Problems v. Commissioner (“CHAMP”) addressed this issue holding that the taxpayer’s caregiving services business and its cannabis business were separate business activities because the taxpayer “was regularly and extensively involved in the provision of caregiving services, and those services are substantially different from the [taxpayer’s] provision of medical marijuana.”[4]

The cannabis dispensary in CHAMP “operated exclusively for charitable, educational and scientific purposes,” and its income was a bit less than its expenses.[5] The director was experienced in health services and operated the dispensary with caregiving as the primary feature; dispensing cannabis, with instruction on how to best consume it, was a secondary feature.[6] The majority of the employees, 18 out of 25, worked exclusively in the caregiving portion of the business.[7] Slightly less than half of its members, suffered from AIDS and paid a single membership fee “for the right to receive caregiving services and medical marijuana from” the taxpayer.[8] The CHAMP court allocated expenses between the marijuana business, which was subject to section 280E, and the caregiving business, agreeing with the taxpayer regarding how the expenses should be allocated.[9]

The tax court’s holding in CHAMP notwithstanding, the IRS is empowered to second guess a cannabis enterprise’s characterization of its business. The IRS will challenge a taxpayer’s characterization of its business “when it appears that his [or her] characterization is artificial and cannot be reasonably supported under the facts and circumstances of the case.”[10] The Tax Court has applied nine factors to determine whether a taxpayer’s characterization of two or more activities is unreasonable or artificial: (1) whether the taxpayer conducts the activities at the same location; (2) whether the taxpayer undertook the activities to find sources of revenue from his or her land; (3) whether the taxpayer formed the undertakings as separate activities; (4) whether one activity benefited from the other; (5) whether the taxpayer used one activity to advertise the other; (6) the degree to which the activities shared management; (7) the degree to which one individual managed the assets of both activities; (8) whether the taxpayer used the same accountant for the activities; and (9) the degree to which the activities shared books and records.[11]

A recent Tax Court ruling provides cannabis enterprises with a cautionary example of what not to do.[12] In Olive v. Commissioner, the IRS successfully contested the taxpayer’s characterization of his California medical cannabis dispensary as both a dispensary and a separate caregiving center as in CHAMP.[13] The dispensary, The Vapor Room Herbal Center (“Vapor Room”), primarily sold medical cannabis and provided ancillary services.[14]

The taxpayer at issue operated The Vapor Room as a sole-proprietor out of a 1250-square-foot room.[15] He established the Vapor Room so his patrons, some of whom suffered from cancer or HIV/AIDS, “could socialize and purchase and consume medical marijuana there.”[16] He “designed the Vapor Room with a comfortable lounge-like, community center atmosphere, placing couches, chairs and tables throughout the premises. He placed vaporizers, games, books, and art supplies on the premises for patrons to use at their desire.”[17] The Vapor Room provided yoga classes, chess and other board games and movies, chair massages with a therapist, and complimentary snacks and beverages.[18] The taxpayer did not charge patrons a fee to frequent the Vapor Room.[19] The Vapor Room’s sole revenue source was its sale of medical cannabis.[20]

In his purported reliance on CHAMP, the taxpayer asserted the Vapor Room trafficked in cannabis only when patrons purchased cannabis, while the rest of the Vapor Room’s business consisted of caregiving services.[21] The court rejected this argument, stating:

“Petitioner essentially reads our Opinion in CHAMP to hold that a medical marijuana dispensary that allows its customers to consume medical marijuana on its premises with similarly situated individuals is a caregiver if the dispensary also provides the customers with incidental activities, consultation or advice. Such a reading is wrong. A business that dispenses marijuana does not necessarily consist simply of the act of dispensing marijuana, just as a business that sells other goods does not necessarily consist simply of the passing of those goods.”[22]

Applying the nine factors stated above, the court held that the Vapor Room consisted of one business:

“The facts here persuade us that the Vapor Room’s dispensing of medical marijuana and its providing of services and activities share a close and inseparable organizational and economic relationship. They are one and the same business. Petitioner [the owner of the Vapor Room] formed and operated the Vapor Room to sell medical marijuana to the patrons and to advise them on what he considered to be the best marijuana to consume and the best way to consume it. Petitioner provided the additional services and activities incident to, and as part of, the Vapor Room’s dispensing of medical marijuana. and the Vapor Room’s employees were already in the room helping the patrons receive and consume medical marijuana and the entire site of the Vapor Room was used for that purpose. The record does not establish that the Vapor Room paid any additional wages or rent to provide the incidental services and activities. Nor does the record establish that the Vapor Room made any other significant payment to provide the incidental activities or services. Petitioner also oversaw all aspects of the Vapor Room’s operation and the Vapor Room had a single bookkeeper and a single independent accountant for its business. These facts further support our conclusion that the Vapor Room had only one trade or business.”[23]

Cannabis entrepreneurs should beware that the tax court decided CHAMP before its decision itemizing the nine factors stated above. The record in CHAMP seemingly suggests that applying three of the factors compels the same outcome as Olive — same location, director, and accountant.[24] On the other hand, the tax court did not provide that any one of the nine factors or what combination thereof determines the outcome.[25] Prudent business people can manage this risk by structuring their state-sanctioned cannabis enterprises to comport with the nine factors.

Whether a cannabis business with one or more additional businesses is more analogous to CHAMP versus Olive likely turns on the nature and extent of the separate activities.[26] For instance, if a cannabis business sells cannabis and smoking pipes, the taxpayer will likely face an uphill climb to prove that these two sectors of the business did not aid each other’s cash flows. Section 280E would deny this taxpayer all expense deductions even if it would not otherwise apply to an independent smoking pipe retailer.[27] Businesses with more substantial separation, like significant separate costs and sales revenue are more likely to prevail.[28] Such businesses should determine what expenses are allocable to the non-cannabis activities and deduct them.


[1] See Californians Helping to Alleviate Med. Problems v. Comm’r, 128 T.C. 173, 182 (2007) (hereinafter “CHAMP”).

[2] See Edward J. Roche, Jr., Federal Income Taxation of Medical Marijuana Businesses, 66 Tax Law. 429, 469 (2013).

[3] See Alverson v. Comm’r, 25 B.T.A. 482, 488 (1937); Treas. Reg. § 1.183(d)(1).

[4] See CHAMP, 128 T.C. at 183.

[5] See id. at 174, 176-77.

[6] See id. at 174-75.

[7] See id. at 175-76.

[8] See id. at 174-75.

[9] See id. at 185.

[10] See Treas. Reg. § 1.183-1(d)(1).

[11] See Trupp v. Comm’r, 103 T.C.M. (CCH) 1594, 2012 WL 1232085, *8 (2012).

[12] I have carefully attempted to withhold my personal opinion from these blogs to not detract from their informative purpose. I cannot resist here. The Olive case is a flagrant example of failing to plan for income taxation as a cannabis enterprise generally, failing to keep records for appropriate COGS adjustments, and having to react to these failings as a result.

[13] See Olive v. Comm’r, 139 T.C. 19, 37 (2012).

[14] See id. at 19.

[15] See id. at 21.

[16] See id.

[17] See id. at 21-22.

[18] See id. at 23.

[19] See id. at 22.

[20] See id.

[21] See id. at 39.

[22] See id. at 40.

[23] See id. at 41-42.

[24] See CHAMP, 128 T.C. at 175-85.

[25] See Trupp, 2012 WL at *8.

[26] See Roche, supra note 2, at 472.

[27] See id.

[28] See id.

The Taxation of Legal Cannabis Part 2: Cost of Goods Sold

Last week I introduced the conflict between federal income tax law and state-sanctioned cannabis enterprises here and here.[1] In brief, the Internal Revenue Code (“Code”) section 280E proscribes state-sanctioned cannabis enterprises from deducting their ordinary and necessary business expenses like rent and employee salaries from gross income. Thus, cannabis enterprises are currently subject to tax on their gross income, not their net income.

In 1982, Congress added section 280E to the Code to punish drug dealers.[2] Congress enacted section 280E largely in response to a Tax Court ruling.[3] In Edmonson v. Commissioner, the Tax Court allowed a drug dealer to deduct his expense associated with selling various drugs.[4] The court relied on section 162[5] to justify its ruling.[6] The taxpayer at issue sold amphetamines, cocaine, and marijuana.[7] The court allowed the taxpayer to deduct, among others, cost of goods sold (“COGS”) and telephone and automobile expenses as ordinary and necessary business expenses without reference to the illegal nature of the taxpayer’s business.[8] Responding to the case, the Senate Finance Committee stated that changing the law was necessary to comport with the “sharply defined public policy against drug dealing.”[9]

The income the taxpayer reported in Californians Helping to Alleviate Medical Problems v. Commissioner (“CHAMP”)[10] illustrates section 280E’s punitive effect. The taxpayer reported the following income and deductions from the business, a cannabis dispensary that also provided caregiving services:[11]

Gross receipts or sales

$1,056,833

Less returns and allowances

8,802

Balance

$1,048,031

COGS

835,312

Gross profit

$212,719

Total deductions

212,958

Taxable loss

($239)

The taxpayer in CHAMP nearly broke even. Section 280E, however, denied the taxpayer most of its $212,958 worth of deductions resulting in the taxpayer having approximately $200,000 of taxable income for the year instead of a loss.[12] Assuming, a thirty-five percent combined federal and state tax rate, the taxpayer had a tax liability of over $70,000 for a business that did not truly generate gain. Thus, section 280E converted the taxpayer’s small loss into a sizable tax bill.

Albeit far from a level playing field with other commercial enterprises, this situation is not as dire as it seems because a cannabis enterprise does not have to calculate its income tax strictly as a percentage of its gross income. The Tax Court explained that “[COGS] is not a deduction within the meaning of [the tax code] but is subtracted from gross receipts in determining a taxpayer’s gross income.”[13]

Here lies a state-sanctioned cannabis enterprise’s first tax planning opportunity. While a cannabis enterprise cannot deduct the ordinary and necessary expenses incurred in running the enterprise, it can subtract the wholesale cost of the cannabis itself from gross revenue before calculating how much tax she owes.[14]

Section 280E does not apply to COGS.[15] This exception stems from a technicality: COGS is an adjustment taken into account to arrive at gross income rather than a deduction.[16] Treasury regulation section 1.61-3, subdivision a, provides, “gross income” means the total sales, less COGS. Regulation section 1.162-1, subdivision a, contains a similar provision, “The cost of goods purchased for resale is deducted from gross sales in computing gross income.” Denying such an adjustment would raise constitutional concerns that are not immediately relevant to this blog. Rest assured, the tax court in CHAMP conceded in dicta that this is “consistent with the case law on that subject.”[17]

Allowing for COGS adjustment but not for ordinary business expenses deduction puts cannabis enterprises in an unusual position because taxpayers ordinarily prefer to deduct an expense currently rather than to capitalize it as attributable to the cost of inventory or otherwise.[18] A current deduction reduces tax liability immediately; capitalizing an expenditure to inventory delays any deduction until the inventory is sold.[19] Because section 280E denies a cannabis business the current deduction, cannabis enterprises may capitalize expenditures to the cost of inventory to benefit from years of legislation, cases, and IRS rulings calling for an expanded reading of the capitalization rules, thereby reducing their taxable income.[20]

This blog is already much longer than I hoped it would be. So for brevity’s sake, I will not detail the various accounting methods available to maximize the COGS adjustment to gross income.[21] I encourage cannabis businesses to consult a qualified tax professional to verify that their businesses are not overtaxed and complying with the underlying statutes and regulations. Nevertheless, I hope a brief, oversimplified example will be helpful to illustrate the concept.

California Recreational Cannabis, Inc. (“Cal Can”) started the fiscal year with $420 worth of inventory. Cal Can reasonably capitalized a portion of that year’s rent, labor, equipment, maintenance cost, advertising, and ad valorem tax on inventory, among other things, towards selling the inventory on hand. These costs added up to $1,000. Cal Can sold $220 of the inventory throughout the year and $200 worth of inventory remained. Cal Can has $1,220 of COGS for the year that it can subtract from gross income.

Inventory at start of year

$420

Less incurred inventory costs for the year

(1,000)

Cost of goods available for sale

$1,420

Less ending inventory

200

COGS

$1,220

On a final note, consider that state-sanctioned cannabis sellers are not overtaxed for engaging in a federally illegal enterprise. If a taxpayer engages in other illegal business activity, like contract killing, she would owe federal income tax on the profits she earned. Unlike cannabis sellers, she would be permitted to deduct as ordinary and necessary business expenses the cost of her murder weapon, travel to and from the crime scene, payments to contractors who aided her, and any other expenses associated with this activity.[22] Section 280E only applies to income from sales of substances under Schedule I and II of the Controlled Substances Act.


[1] Thank you very much to Alan Brochstein, founding partner of New Cannabis Ventures (“NCV”), for graciously offering to publish Part I of this blog series on NCV.

[2] S. Rep. No. 97-494, at 309 (1982) (“To allow drug dealers the benefit of business expense deductions at the same time that the U.S. and its citizens are losing billions of dollars per year to such persons is not compelled by the fact that such deductions are allowed to other, legal, enterprises.”).

[3] Edward J. Roche, Jr., Federal Income Taxation of Medical Marijuana Businesses, 66 Tax Law. 429, 437 (2013).

[4] 42 T.C.M. (CCH) 1533, 1534–35, 1981 T.C.M. (P-H) ¶ 81,623, at 2428–29.

[5] I.R.C. § 162 (2006) (permitting a deduction for ordinary and necessary business expenses).

[6] 42 T.C.M. (CCH) 1535, 1981 T.C.M. (RIA) ¶ 93,091, at 2429.

[7] See id. at 1534, 1981 T.C.M. (RIA) ¶ 93,091, at 2428.

[8] See Roche, supra note 3, at 437.

[9] S. Rep. No. 97-494, at 309 (1982).

[10] See 128 T.C. 173, 182 (2007) (hereinafter “CHAMP”).

[11] See id. at 176, 184.

[12] See id. at 183-85.

[13] Olive v. Comm’r, 139 T.C. 19, 20 n.2 (2012).

[14] See id. at 28.

[15] See CHAMP, 128 T.C. at 177.

[16] See Roche, supra note 3, at 443.

[17] 128 T.C. at 183 n.4.

[18] See Roche, supra note 3, at 444.

[19] See id.

[20] See id.

[21] But in case you want to test your tax advisor’s knowledge, the methods include full absorption inventory cost method, the uniform capitalization (“UNICAP”) rules under Code section 263A, allocation of indirect costs under the full absorption inventory method and the UNICAP rules, and option capitalization of indirect costs.

[22] See Comm’r v. Tellier, 383 U.S. 687, 691 (1966) (stating that income from a criminal enterprise is taxed on equal footing to “more conventional sources”); Benjamin Moses Leff, Tax Planning For Marijuana Dealers, 99 Iowa L. Rev. 523, 533 (2014).

The Taxation of Legal Cannabis Part 1

With the recent legalization of recreational cannabis sales in Alaska, Colorado, Oregon, and Washington,[1] the writing is on the wall for the world’s eighth largest economy.[2] As of the writing of this blog, there are eleven competing ballot propositions seeking to legalize recreational cannabis use in California in 2016.[3] As Colorado and Washington have already experienced, the legalization of recreational cannabis brings an abundance of new business opportunities. And, as with any business, properly complying with legal obligations is critically important to minimizing risk. Chief among these obligations is tax compliance.

Despite the policy preferences that these states expressed (with the exception of California as of now), discussing state cannabis legalization and its taxation should not omit the obvious point that the United States federal government regulates cannabis. The federal government continues to treat cannabis as a Schedule I narcotic under the Controlled Substances Act (“CSA”).[4]  This means that Food and Drug Administration licensed physicians cannot prescribe cannabis; and, distributing or manufacturing cannabis is a serious felony.[5]

Cannabis’s classification under the CSA also empowers federal tax law to stand in the way of permitting states from realizing their full policy objectives. This isn’t news to businesses who have operated in the medical cannabis space for some years. As the industry’s lead trade publication reported, “the federal tax situation is the biggest threat to [state-sanctioned cannabis] businesses and could push the entire industry underground.”[6] An industry insider put it another way, “[n]o business, including ours can survive if it is taxed on its gross revenue. The IRS is trying to tax us out of existence.”[7]

What this industry insider referred to is Internal Revenue Code section 280E. Section 280E proscribes businesses trafficking in Schedule I or II substances under the CSA from deducting their ordinary and necessary business expenses from gross income. Thus, current federal tax law bars state-sanctioned cannabis sellers from deducting their expenses before calculating their taxable income.

While the status quo is far from ideal, commercial cannabis enterprises are not without recourse. Over the next few weeks, I will publish a series of blogs demonstrating some of the available tax planning opportunities to mitigate section 280E’s force.

After that series, I’ll write several blog posts dealing with the new medical cannabis regulatory and transaction tax (e.g., excise, sales, and use taxes) framework teed up by Governor Brown’s recent signing of three bills into law comprising the California Medical Marijuana Regulation and Safety Act.


[1] This list omits the District of Columbia despite legalization there because the District does not permit commercial production and sale of recreational cannabis.

[2] Samantha Masunaga, We’re No. 8: California Near Top of World’s Largest Economies, LA Times (July 2, 2015 1:21 PM), http://www.latimes.com/business/la-fi-california-world-economy-20150702-story.html.

[3] Ballotpedia, California 2016 Ballot Propositions, https://ballotpedia.org/California_2016_ballot_propositions (last visited Dec. 7, 2015 9:12 PM).

[4] 21 U.S.C. §§ 801-952 (2006); see 21 U.S.C.A. § 812(a)(1)(West Supp. 2011) (defining Schedule I drugs as those with a high potential for abuse, without currently accepted medical use and for which “there is a lack of accepted safety for use of the drug . . . under medical supervision”).

[5] 21 U.S.C. §§ 801-952 (2006).

[6] Marijuana Business Conference Wrapup: 36 Tips, Lessons & Takeaways for the Cannabis Industry, Med. Marijuana Bus. Daily (Nov. 15, 2012), http://mmjbusinessdaily.com/marijuanabusiness-conference-wrapup-36-tips-lessons-take-aways-for-the-cannabis-industry/.

[7] Al Olson, IRS Ruling Strikes Fear in Medical Marijuana Industry, Cannabis Health News Mag. (Oct. 5, 2011), http://cannabishealthnewsmagazine.com/legal/1094/irsruling-strikes-fear-in-medical-marijuana-industry/.

Changes Ahead in the California Death Penalty

The death penalty is setting up to be a hot topic in the next California election.  Advocates on both sides of the issue have proposed legislation to be voted on in 2016.  Proponents of the death penalty have asserted a ballot measure that would speed up executions in California while anti-death penalty advocates such as criminal defense attorneys aim to get a measure on the ballot which would repeal the state death penalty entirely.

In 2014, Californians for Death Penalty Reform and Savings proposed a measure aimed at reducing the time between conviction and execution in California from as long as 30 years to 10 to 15 years.  The measure did not end up on the 2014 election ballot, but has been approved for circulation in California for the November 2016 ballot.

The initiative claims to expedite executions by increasing the number of available appeal attorneys and streamlining the appeals process through time limitations and restriction of frivolous claims.  Proponents claim the measure will bring justice to victims and save taxpayers millions of dollars each year.  The initiative’s financial impact statement revealed it would increase state costs potentially in the tens of millions of dollars annually for several years while potential savings in state correctional facilities could eventually reach tens of millions of dollars.

On the other side of the argument, the measure for Death Penalty Repeal has been gaining attention. Longtime supporter of death penalty repeal, Mike Farrell, proposed the Death Penalty Repeal ballot measure in September of this year.

This measure would repeal California’s death penalty, making the maximum punishment for murder offenses life in prison without possibility of parole.  Should the measure be approved, it would apply retroactively to those already facing death sentences.  The initiative’s fiscal impact statement found a potential net reduction in state and local government costs of about $150 million annually within a few years.

Both ballot measures require over 300,000 signatures in order to qualify for the 2016 election.  For more information on both proposed measures, visit  https://oag.ca.gov/system/files/initiatives/pdfs/13-0055 (13-0055 (Death Penalty)).pdf and http://www.oag.ca.gov/system/files/initiatives/pdfs/15-0066 %28Death Penalty%29.pdf? .

Criminal Aspects of the Affordable Care Act: A Rise In Medicare Fraud and Anti-Trust

Implementation of the ACA is going to keep attorneys busy for years.  Many local law firms have already ramped up for the large up-tick in work expected following implementation.  While civil attorneys will see increased caseloads in their traditional field, in many instances they may also need to advise clients of potential criminal consequences.

Compliance with the ACA will be a growing problem..  Federal health investigators have launched 112 new investigations, nearly one-quarter of those deal directly with programs authorized under the ACA.  These investigations have yet to reach Sacramento but they are on our horizon. Continue reading

The Stupidest Criminal Case Ever…

Justice system in USALast week I had a client acquitted in under 45 minutes of two alleged sex crimes. Since the day this client retained me I nick-named his case the Stupidest Criminal Defense Case Ever. Why? The allegations were ridiculous. The only way to find all of the statutory elements based on the contents of the police reports required an active imagination. A very active imagination.

Unfortunately I can’t disclose the specific facts – it’s such an odd scenario it could give away the client’s identity. It was akin to being arrested for being breaking into a house and law enforcement wouldn’t believe the client actually owned the house no matter what anyone told them or what evidence they were given. It felt like practicing law in a county where the standard was guilty until proven innocent!
Continue reading

SEC Levies Fine Against Diebold for FCPA Violations

Diebold, the company that makes ATM machines and security systems has run afoul of the FCPA [Foreign Corrupt Practices Act].  The SEC has alleged that some of Diebold’s subsidiaries spent more than $1.8 million dollars on travel, entertainment and other gifts in trying to influence bank owners’ decisions in China.

From a business perspective, one of the main challenges presented in doing business overseas is the expansive definition of who a “foreign official” is under the FCPA. Businesses have to balance the reality of how business is conducted in certain foreign countries with laws here in the United States, laws which can make it very difficult to get business done. Continue reading

In Criminal Cases the Best Defense is Often Behind the Scenes

Expert WitnessesAt a local restaurant over the weekend I ran into a couple I’ve known for a couple years through our children’s school.  In conversation, I discovered they both are psychologists who specialize in trauma victims.   I was thrilled – I’m always on the look-out for potential new experts.

The best way to defend a state or federal criminal case is to make sure it never gets filed, by persuading the prosecution the client is innocent, or that the case is unwinnable.  Experts can be key to developing compelling reasons for the prosecution not to file criminal charges.     Continue reading