Hazy on the Details

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 is currently the Director of Strategic Alliances for Revenue Discovery and Recovery at LexisNexis Risk Solutions. In this role, Benson is responsible for developing partnerships for the tax and revenue and child support enforcement verticals. He focuses on embedded companies that have a need for third-party analytics to enhance their current offerings.