To enforce federal tax code compliance with IRC Section 280E, the IRS runs compliance initiative projects. This is probably in accordance to the noted “high likelihood that a good deal of cannabis dispensary owners were non-filers and not reporting their sales.”
Business Law and Legal Topics
Bankruptcy and Automatic Stay
According to United States bankruptcy law, an automatic stay is defined as an automatic injunction, the purpose of which halts the actions of creditors to collect debts from a debtor who has filed for bankruptcy relief.
Provisions for automatic stay fall under section 362 of the U.S. Bankruptcy Code, which suggests that the stay begins automatically when the debtor files a petition with the bankruptcy court.
Although a stay is automatic, secured creditors may file a petition with the bankruptcy court for relief against the automatic stay if they can show cause.
Establishing Residency or Domicile in California Can Be Taxing
Robert Wood, tax expert and frequent contributor to Forbes.com, wrote that “many would-be former Californians have unrealistic expectations about establishing residency in a new state. They may have a hard time distancing themselves from California, and they may not plan on California tax authorities pursuing them.”
Can Internal Revenue Code Section 1202 Benefit You?
There is a generous tax benefit that only select taxpayers qualify for. Not well known, it is called ‘‘qualified small business stock,’’ or QSBS for short, and is found in Section 1202 of the Internal Revenue Code. Titled the “Partial Exclusion for Gain from Certain Small Business Stock,” it allows taxpayers to exclude gain from certain stock.
Issues Affecting Credit Rating Agencies
Competency, Trustworthiness of Ratings, and Conflicts of Interest
Credit rating agencies have not been held accountable for their ratings. Meaning, an inaccurate rating brings no repercussion to these agencies. If one is not held accountable for their actions, logically there is less incentive to perform well or even at a high standard.
These agencies knew their services were needed under government recommendation yet they were not held to a standard which required the utmost diligence and scrutiny to measure the accuracy of their ratings (15 Chap. L. Rev. 138). This type of attitude towards the agencies allowed the agencies to become comfortable with their existing practices and did not encourage any improvements in the methods these agencies used to rate the instruments.
Credit Rating Agencies – Part One
What is a Credit Rating Agency and What Task Does it Perform?
Since 1931, the United States government has encouraged or even required certain types of investors to use financial instruments or securities that have been rated high by rating agencies (15 Chap. L. Rev. 139). These agencies use available financial data, economic conditions, and various other factors to determine the strength of a particular firm, security, or instrument offered on the market. Logically, no rational investor would choose to use a financial instrument that possessed primarily bad qualities. The market should realize these bad qualities and the price of this instrument should decrease accordingly.
The credit rating agencies provide ratings which investors are advised or even required to rely on when investing in certain financial instruments. These ratings are intended to provide the investor with an accurate picture toward the quality of the financial instrument without having to do the tedious homework required to determine if credit rating given by an agency is in fact an accurate rating. Under this logic, in comparison to the average individual investor, shouldn’t a credit rating agency be more qualified and have more information to provide the most accurate credit ratings available?
How to Prevent Corporate Fraud
This is the fourth part in my series discussing corporate fraud. For more on this topic please read
Types of Fraud
However, financial statement manipulation is simply on the edge of the fraud landscape. Much more common are asset misappropriations. The three basic types of asset misappropriations are skimming, larceny and fraudulent disbursements. Skimming and larceny occur when cash is taken directly from the employer, the difference between the two being that skimming occurs before the cash has a chance to be reported. Fraudulent disbursements are a way of scamming the corporation into giving the fraudster payments. Fraudulent disbursements are one of the more popular method of fraud and are implemented in a number of different ways. False billing and payroll schemes are the most common according to the text. Shell companies or ghost employees are often used to make the organization distribute payment with minimal expose outside of the immediate system. In more some of the more complicated cases, corruption in all forms is prevalent. Bid rigging, kickbacks and bribes are all forms that corruption can flourish in the corporate environment. The best way to combat this is through a combination of increased security measures working in conjunction with one another to best prevent organization fraud. While the two organizations should have some overlap and maybe some shared responsibility, one is not a substitute for the other. Both are critical to maintaining the proper level of internal controls necessary to prevent fraud
Government Response to Corporate Fraud
I next want to discuss the history of the governmental response and the more noteworthy commentary on corporate culture in the last thirty years. Although measures to prevent corporate crime were in effect before the 1980s, one of the more sufficient events was the formation of COSO in 1985. COSO is the Committee of Sponsoring Organizations, a volunteer group formed by the major accounting, finance, and other professional organizations. The committee reviewed instances of fraud and made key recommendations to improve reporting and internal controls. Among these were having an audit committee composed entirely of independent directors, developing a written code of ethics, and recommending that the SEC have new power to bar or suspend those involved in fraudulent financial statement reporting. In addition, COSO established a framework for an effective internal control program, which has become the standard framework for many companies in the United States. The authors next detail the Sarbanes-Oxley Act of 2002, which created the Public Company Accounting Oversight Board and established other procedures and safeguards. Sarbanes-Oxley vastly increased the requirements and protocols for publicly traded companies, as well as creating new laws in the areas of securities fraud, white-collar crime, and whistleblower protection.
On Corporate Fraud
Corporate fraud has always been one of the scourges of civilized society, although in the past decade we have witnessed unprecedented levels of greed in corporate culture. The past decade has been marred by Enron, WorldCom, Adelphia and many others, as fraud shrinks our economy by approximately six percent. Watchful eyes cannot be everywhere at all times, but often the problem is that the individuals responsible for oversight lapse on their duty of independence. In response, wide scale reform has been passed into law as the government tries to combat the problem on all fronts. However, even the most stringent reforms, reporting requirements, and penalties do not deter all fraudulent behavior within the corporate environment. I want this series of articles to serve as reference point for a variety of individuals, since fraud is a serious concern whose aftershocks can be felt well outside of the company. Thoroughly understanding and utilizing the methods contained in this book will help combat the challenges we now face today in the work place.