Hazy on the Details

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53466460 - computer keyboard with a lack and white danger sign with text tax fraud

Americans spend around $40 billion per year on the purchase of legal and illegal marijuana. While the number of states that have passed legislation legalizing the use of marijuana for medical purposes and recreational use has increased, it’s still a federal crime to grow and sell the psychoactive substance. (So, you can understand how someone running a marijuana business can get into a lot of trouble if they do not follow the laws set up around the booming industry.) A Santa Rosa, California man committed Business Tax fraud when he failed to report income from his very profitable marijuana distribution business to the Internal Revenue Service (IRS).

In the State of California, the sale of medical and recreational marijuana is legal as long as the seller has a state and local license. While it appears that today’s defendant was operating a legal business, it’s hazy as to why he thought he could underreport his earnings to the IRS. (Perhaps he was smoking some of the product he sold, which clouded his ability to make good decisions.)

Apparently, the man had quite a profitable marijuana medical distribution business, earning more than $1.1 million in revenue. He got into trouble when he did not report the correct amount of earnings on his annual business income tax returns. (And, the IRS got a bit out of joint about it.)

While in court, the Californian admitted that over three years, he distributed cannabis and made hundreds of thousands of dollars doing it. (But, he only reported gross receipts of $85,000 each year.) Today’s fraudster deposited more than $1 million into multiple bank accounts, hiding his crime by keeping the transactions less than $10,000 each. (This prevented the financial institutions, which held the money, from filing a transaction report with the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN).)

The 44-year-old Santa Rosa man pleaded guilty to Business Tax fraud for failing to report the accurate amount of income received from his marijuana distribution business. He was sentenced to two years behind bars and was ordered to pay a $10,000 fine and restitution of $466,707. (This was the amount of tax money lost by the IRS.) He was also ordered to serve one year of supervised release following his time in prison. While today’s perpetrator tried to throw up a smoke screen to keep his deception hidden, the IRS saw through the haze and extinguished his fraudulent scheme.

Today’s “Fraud of the Day” is based on an article entitled, “Santa Rosa marijuana distributor sentenced to prison on tax fraud,” published by The Press Democrat on November 2, 2018.

A Santa Rosa man was sentenced this week to two years in prison after failing to report more than $1.1 million in revenue from his marijuana distribution business on his federal income tax returns.

Charles Woods, 44, was also ordered Thursday by U.S. District Court Judge Susan Illston to pay a fine of $10,000 and restitution of $466,707, which is equivalent to the tax loss resulting from the business proceeds he did not report, according to the office of U.S. Attorney Alex Tse.

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Larry Benson, Senior Director of Strategic Alliances, LexisNexis Risk Solutions - Government

Larry Benson is responsible for developing strategic partnerships and solutions for the government vertical. His expertise focuses on how government programs are defrauded by criminal groups, and the approaches necessary to prevent them from succeeding.

Mr. Benson has 30 years of experience in sales and business development. Before joining LexisNexis® Risk Solutions, he spent 12 years founding and managing two software technology startups. During the 1990s he spent 10 years as a Regional Director helping to grow a New England-based technology company from 300 employees to 7,000. He started his career with Martin Marietta Aerospace working on laser guided weapons and day/night vision systems.

A sought-after speaker and accomplished writer, Mr. Benson is the principal author of “Fraud of the Day,” a website dedicated to educating government officials about how criminals are defrauding government programs. He has co-authored WTF? Where’s the Fraud? How to Unmask and Stop Identity Fraud’s Drain on Our Government, and Data Personified, How Fraud is Changing the Meaning of Identity.

Benson holds a Bachelor of Science in Physics from Albright College, and earned two graduate degrees – a Master of Business Administration from Florida Institute of Technology, and a Master of Science in Engineering from Lehigh University.