IRS Madness – Reefer Rules

November 21, 2014 by admin

Steven A. Leahy
IRS Madness – Reefer Rules

By Steven A Leahy

On Tuesday, November 4, 2014, Oregon, Alaska and the Washington D.C. made recreational use of marijuana legal. Twenty-one other states allow medical use of marijuana. Illinois now accepts applications from patients for the “Medical Cannabis Pilot Program.” Businesses have sprung up around the country to accommodate the new demand. But the federal government has laws against marijuana – and the IRS enforces those laws through our tax policy. This article will examine our tax laws as applied to those in the “Canabusiness.”

IRS Code Section 280E “prohibits taxpayers[] from deducting any expense of a trade or business that consists of the trafficking of a controlled substance such as marijuana.” Section 280E was drafted in response to a 1974 case involving a Minneapolis drug dealer. After his arrest, the IRS audited him and assessed taxes based on his drug deals. The convicted drug dealer reduced his tax burden by deducting his drug dealing expenses. He included traveling expenses, rent, telephone, equipment, etc. Congress decided to close the drug dealer loop hole and adopted 280E.

Now that states and jurisdictions have legalized the recreational use of marijuana and have permitted medical use of marijuana the tax laws have changed, right. Well not exactly. Under the federal Controlled Substances Act, Marijuana is still a “controlled substance.” The United State Supreme Court has held that “no exception in the Controlled Substances Act exists for marijuana that is medically necessary.”

A number of cannabis dispensaries have found out what this apparent contradiction means. Early on, the IRS interpreted the prohibition to mean that cannabis dispensaries are not permitted any deductions for income tax purposes, including the cost of goods sold. That means dispensaries would be taxed on the gross sales rather than net sales. In a 2012 case heard by the Tax Court in California, Judge Kroupa narrowed that interpretation, holding that the cost of goods sold (COGS) “is not a deduction [] but is subtracted from gross receipts in determining a taxpayer’s gross income.” Therefore, COGS can be used by cannabis dispensaries to reduce taxable income. Other expenses (wages, rent, utilities, etc), however, are deductions and prohibited to cannabis dispensaries under the code. Obviously, the loss of any deduction can make a big difference at tax time.

To add to the burdens of cannabis dispensaries, the IRS assesses a 10% penalty on businesses that pay their federal employee withholding taxes in cash, according to the Denver Post. The Controlled Substances Act also prohibits banks from doing business with cannabis dispensaries. The Justice Department and Treasury have changed some regulations to address the concerns of the banking industry. But the banks are still not comfortable with the change of regulations without a change in the law.

Frank Keating, president of the American Bankers Association said “While we appreciate the efforts by the Department of Justice and FinCEN, guidance or regulation doesn’t alter the underlying challenge for banks.” He continued, “as it stands, possession or distribution of marijuana violates federal law, and banks that provide support for those activities face the risk of prosecution and assorted sanctions.”

The banking rules create other problems for cannabis dispensaries. For example, dispensaries can’t get credit card processing accounts, checking accounts or saving accounts. The lack of banking services means the dispensaries deal as a cash business. The large amounts of cash create security problems and IRS reporting concerns.

Those in the canabusiness have been struggling with these IRS problems. If you have IRS problems, you should take action. You need an attorney to help you sort through your options and choose the best remedy. Before you do anything, you should give me a call. We can discuss all your options. Opem Tax Resolutions & The Law Office of Steven A. Leahy, PC (312) 664-6649. Call NOW to set up your FREE Consultation.

Marine Appreciation – Law School Scholarship

November 11, 2014 by admin

Honoring Those who have served our Country – Veteran’s Day and Every Day

What Service Means to Us

There are many words in the English language that get tossed around quite a bit – so often, in fact, they lose some of the meaning and power they once held. ‘Service’ is one of those words. We use it all the time to refer to a great many aspects of modern life, and often it becomes background noise. We don’t pause to think about the word really means – especially when it comes to the service rendered by those of us who enter the armed forces to defend our country and make the world a better place.

The Marines and other branches of the military risk their lives every day to fight terrorism, to help defenseless people everywhere, and to ensure that our democracy and way of life are preserved for future generations. We often sum up the immense sacrifices – sacrifices that go far beyond the risking of lives and reverberate back onto people’s family’s – with the simple word ‘service’ without truly pausing to consider what that word means.

Brother in Arms

Steven A. Leahy knows what Service means from the perspective of a Marine’s family. His brother served in the Marine Corps, and Steven learned firsthand what kind of sacrifices are made not only by the serving individual, but by their family. Every family has its challenges – financial, emotional, and spiritual – but families who have members serving in the marines and other armed forces have a special burden. Steven A. Leahy knows because he lived it, firsthand.

This inspired him to reach out and do something to help families like his who have members serving in the Marine Corps – and to help bring better lawyers into the world at the same time, lawyers who have had the values of the Marine Corps instilled in them, lawyers for whom service is not just a vague concept, but a powerful reality.

The result of this desire is the Marine Appreciation – Law School Scholarship.

The scholarship will give $1,000 towards tuition or books to one applicant who meets all of the requirements:

• 18 years old or older
• a current law student attending or planning to attend an accredited law school
• who has served in the Marines or had a family member serve in the Marines
• who has maintained a GPA of at least 3.0 in undergraduate or current law school work

Applicants will write and submit a 1-3 page essay describing their experiences and the impact of the service and sacrifice to their family. All materials and the application must be submitted by June 30th, 2015 to Scholarship@it-lawyer.com or by mail to Steven Leahy, The Law Office of Steven A. Leahy, PC, 150 N Michigan Ave #1120, Chicago, IL 60601. For more information, go to our page dedicated to the law school scholarship.

Service is something that needs to be celebrated – and supported. This scholarship is our way of helping one family so that the service they made possible is rewarded, and passed on to future generations. We hope this stands as inspiration for others to do the same.

Mortgage Complexity

October 9, 2014 by admin

Steven A. Leahy
Mortgage Complexity

By Steven A Leahy

Years ago families looking to finance the purchase of a home went to a local bank and applied for a home loan. The bank did an investigation of the potential borrower and, if they decided to make the loan, received monthly interest and principle payments from the borrower until the loan was paid off. This financial arrangement is straight forward.

Fast-forward: Today most mortgage loans are sold off in the secondary market, rather than serviced by the local bank. The purpose of the secondary market is to create liquidity by allowing banks to sell off loans to third parties and use that money to make additional loans. The secondary market also keeps loans uniform, with lower interest rates to borrowers. The secondary market, however, complicates the mortgage loan process. Instead of just one bank involved in a residential mortgage loan, the secondary market necessitates multiple players: Originators, Aggregators, Trust Companies, Security Dealers, Investors, and Mortgage Servicing Companies.

Most mortgage loans begin with a mortgage loan broker. The broker connects the borrower with a loan originator. As the name suggests, the originator of the mortgage is involved in making a new loan. The originator gathers information from the borrower, and completes and processes the application before the loan appears on the lender’s books. The originator is the lender that appears on the original loan paperwork, the promissory note and mortgage.

After it appears on the lender’s books, the loan is sold off, usually to a “Loan Aggregator” (sometimes referred to as a “Sponser”). Loan Aggregator’s are large mortgage organizations with ties to Wall Street and/or one of government-sponsored enterprises (GSE), Fannie-Mae or Freddie-Mac. Loan aggregators buy mortgages from the mortgage originators, or originate loans themselves. The mortgage loans are packaged, or “pooled,” then securitized into private label mortgage-backed securities through Wall Street, or Agency mortgage-backed securities through one of the GSE’s.

The pooled mortgage-backed securities move to Security Dealers. The Security Dealers create financial products to benefit investors. The products are described as mortgage-backed securities (MBS), asset-backed securities (ABS), collateralized mortgage obligations (CMO) or collateralized debt obligation (CDO). Each financial product spreads the risk of individual mortgage loans over many loans and investors.

These financial packages are placed in a Trust. The Trust becomes the “owner” of the mortgages. However, the Trustee’s interest is solely for the benefit of investors. The trustee does not have an economic or beneficial interest in the mortgage loans and has no authority to manage or otherwise take action on the loans. The Trust maintains investor/securities records, collects payments for the Servicer, and distributes payments to the investors/securities holders.

After the mortgage loans are pooled, securitized and placed in a trust, the security dealers sell shares in the financial products to investors, both large and small. For investors, these mortgage-backed securities are much like bonds. Most offer semi-annual or monthly income to the investors. The investors ultimately collect the interest and principle payments of the homeowners. Ultimately, the investors own the mortgages.

The final party in this arrangement is the loan servicing company. The loan aggregator is responsible for appointing the servicing company. The loan servicing company acts much like a property manager for an apartment building. The servicing company communicates with the borrower, collects payments from the borrower, pays the property taxes and insurance if an escrow is involved, provides customer service to the borrower, calls a default for non-payment, forecloses on mortgages, and modifies mortgage terms within parameters outlined by the owners/investors.

Because of the complexity of mortgage loans, homeowners often do not recognize the plaintiff should a foreclosure case be filed against them. If you are facing foreclosure, you should take action. You need an attorney to help you sort through your options and choose the best remedy. Never hire a firm to help you with your foreclosure unless the firm is experienced in helping homeowners with all the possible remedies, loan modification, short-sales, deed-in-lieu, consent foreclosures, and bankruptcy. Before you do anything, you should give me a call. We can discuss all your options. Opem Tax Resolutions & The Law Office of Steven A. Leahy, PC (312) 664-6649. Call NOW to set up your FREE Consultation.

Foreclosure Defense – Remedies

October 2, 2014 by admin

Steven A. Leahy
Foreclosure Defense – Remedies

By Steven A. Leahy

Foreclosure is the process necessary for a mortgage lender (i.e. mortgagee) to take possession of a property because the borrower (i.e. mortgagor, homeowner) defaults on a contractual obligation to the mortgage lender, usually a default in payments. In Illinois, Mortgage foreclosures are governed by the Illinois Mortgage Foreclosure Law (IMFL) 735 ILCS 5/15-1101 et seq. (2013). There are at least three alternatives for a homeowner to defend against a foreclosure, litigation strategies, loan modifications, and Chapter 13 bankruptcy. This article will discuss the first alternative, litigation strategies.

Illinois is a judicial foreclosure state. That means the mortgage company must file a mortgage foreclosure complaint with the court in the county where the property is located, and go through litigation in order to receive permission from the court to conduct a public sale. As in all litigation, the defendant (homeowner) can defend themselves in court or employ an attorney to defend them. Foreclosure defense has all the same ingredients of other litigation. The homeowner (defendant) can attack every step of the process: the adequacy of the complaint, the propriety of the plaintiff, the sufficiency of the promissory note and/or mortgage and compliance with federal and state regulatory laws.

First, under the IMFL the filed complaint must substantially follow the form set out in 735 ILCS 5/15-1504. If the complaint does not substantially follow the set form a homeowner (defendant) may bring a Motion to Dismiss alleging “the legal sufficiency of a complaint based on defects apparent on its face.” However, courts have concluded that as long a complaint includes all the requirements laid out in the IMFL, the complaint will survive a Motion to Dismiss.

Next, the defendant may attack the plaintiff’s right to bring an action in the first place. This defense is known as a lack of standing. The plaintiff must show that they suffered, or will suffer, direct injury or harm. Many mortgages in the Untied States are bought and sold on a regular basis, so the owner and holder of a mortgage and note change. To complicate matters, mortgages are usually serviced by third parties and held in Trust by yet another party. Often, the homeowner (defendant) will not recognize the named plaintiff on the complaint. That doesn’t mean the plaintiff lacks standing, but it may be a worthwhile investigation to find out if the plaintiff is the proper party.

Another way to attack the foreclosure case is to question the sufficiency of the promissory note and/or mortgage. Mortgage loans are governed by federal and state laws. The Truth in Lending Act (TILA), Home Ownership Equity Protection Act (HOEPA), Real Estate Settlement Procedures Act (RESPA) are federal regulations designed to protect consumers in the purchase of a home. For example, TILA regulates the information that must be disclosed to the borrower prior to extending credit: annual percentage rate (APR), term of the loan and total costs to the borrower. TILA requires this information to be conspicuous on the documents presented to the borrower before signing. TILA also details the remedies for violations of the Act – the most important to homeowners facing foreclosure is Rescission. Rescission allows the borrower to “recind” or “cancel” the loan.

RESPA is another federal regulation about closing costs and settlement procedures. RESPA is enforced by the U.S. Department of Housing and Urban Development (HUD). The Act requires that borrowers receive disclosures at various times in the transaction and outlaws Kickbacks and certain fee splitting arrangements. It also outlines penalties for violations, both criminal and civil.

The problem with this litigation strategy is that it can be very expensive and, in my opinion, ineffective. Litigation strategy is often employed just to buy more time in order to reach another remedy, like a loan modification. There are other ways to buy the time you need to get a loan modification. Because many mortgages have been bought and sold multiple times, locating the necessary documents to prove the foreclosure case can be difficult and time consuming. So, certain discovery requests may buy just as much time, at a reduced cost to the homeowner.

If you are facing foreclosure, you should take action. You need an attorney to help you sort through your options and choose the best remedy. Never hire a firm to help you with your foreclosure unless the firm is experienced in helping homeowner with all the possible remedies, loan modification, short-sales, deed-in-lieu, consent foreclosures, and bankruptcy. Before you do anything, you should give me a call. We can discuss all your options. Opem Tax Resolutions & The Law Office of Steven A. Leahy, PC (312) 664-6649. Call NOW to set up your FREE Consultation.

Foreclosure Defense – Illinois Mortgage Foreclosure Law

September 29, 2014 by admin

Steven A. Leahy
Foreclosure Defense – Illinois Mortgage Foreclosure Law

By Steven A. Leahy

Foreclosure is the process necessary for a mortgage lender (i.e. mortgagee) to take possession of a property because the borrower (i.e. mortgagor, homeowner) defaults on a contractual obligation to the mortgage lender, usually a default in payments. In Illinois, Mortgage foreclosures are governed by the Illinois Mortgage Foreclosure Law (IMFL) 735 ILCS 5/15-1101 et seq. (2013). IMFL sets out the “mode of procedure” a mortgage lender must follow in order to foreclose on a property in Illinois. Under the code “’to foreclose’ means to terminate legal and equitable interests in real estate pursuant to a foreclosure.” That process can be divided in seven basic categories for residential real estate: Default; Filing the Complaint; Service of process; Judgment of Foreclosure; Redemption Period; Judicial Sale; Confirmation.

The first category is default. Default occurs when a homeowner (Mortgagor) violates a term of the promissory note or mortgage agreement. Most often, default occurs when the homeowner fails to make timely payments. But, default can occur for a variety of reasons. For example, failure to pay property taxes, keep insurance payments current, or deeding the property to another without the mortgage holder’s consent can all be considered a default of the loan terms. Usually, promissory notes and/or mortgages have acceleration clauses. An acceleration clause allows the lender to demand the full balance owed upon default.

The second category is filing the complaint. A complaint is the initial pleading in the foreclosure case. The foreclosure complaint lists allegations that, if true, entitle the plaintiff (the mortgage company) to foreclose. In Illinois, before a mortgage company can file a complaint to foreclose a mortgage with the court, it must first send a “notice advising the mortgagor that he or she may wish to seek approved housing counseling.” 1502.5. That notice must be sent at least 30 before filing the complaint. The foreclosure complaint must substantially follow a form set out in the IMFL.

The third category is service of process. Once the foreclosure complaint is filed, the summons, complaint, and notice must be delivered to the homeowner (mortgagor). Proper service of process gives the court jurisdiction over the defendant. Without jurisdiction the court’s orders are void. In Illinois there are several acceptable methods of service of process. The complaint can be handed directly to the homeowner (personal service), or to a person at least 13 years old who resides with the homeowner (substitute service). In some cases, when personal and substitute service have been unsuccessful, the court may allow the complaint to be served by publication. Service by publication allows the mortgage company to place a notice in a newspaper, rather than handing a copy of the complaint to someone. To complete service, a copy of the publication must be mailed to the homeowner.

The fourth category is Judgment of Foreclosure. Judgment of Foreclosure is the court’s order (decision) that permits a judicial sale of the property to occur after the redemption period. Redemption, the fifth category, is the right to pay the full balance owed in order to avoid judicial sale. In Illinois the redemption period ends 7 months from the date of service, or 3 months from the date of entry of a judgment of foreclosure, whichever date will give the homeowner the most time.

The sixth category is judicial sale. A judicial sale is the method used to enforce a judgment of foreclosure. The sale is an auction conducted by a party authorized by the court. The judicial sale must be preceded by a notice of sale. The notice of sale must be published at least 3 consecutive calendar weeks, on in each week, the first such notice to be published not more than 45 days prior to sale, the last such notice to be published not less than 7 days prior to the sale.” The mortgage company is often, but not always, the purchaser at the judicial sale.

The final category is confirmation of the sale. In Illinois, the sale is not complete until the Judge confirms the sale. Generally, the confirmation hearing occurs about 30 – 90 days from the date of the sale. The buyer gains possession of the property 30 days from the date the sale is confirmed by the court.

How long the foreclosure process takes, usually depends on what the homeowner does. So if you are facing foreclosure, you should take action. You need an attorney to help you sort through your options and choose the best remedy. Never hire a firm to help you with your foreclosure unless the firm is experienced in helping homeowner with all the possible remedies, loan modification, short-sales, deed-in-lieu, consent foreclosures, and bankruptcy. Before you do anything, you should give me a call. We can discuss your all your options. Opem Tax Resolutions & The Law Office of Steven A. Leahy, PC (312) 664-6649. Call NOW to set up your FREE Consultation.