Personal Liability for Cannabis Business Debts? Maybe, Says Tax Expert

Agency is actively pursuing former company execs to pay tax bill.

A major liability for cannabis company owners and executives could be tax debts of the business, one California tax attorney is warning industry insiders.

San Francisco tax lawyer Regina Unegovsky told Green Market Report recently that the state Department of Tax and Fee Administration is actively trying to find one or more executives of a now-defunct marijuana farm personally liable for $3 million-$4 million of unpaid tax debts the business had with the state.

That’s a tactic she expects will increase in coming months and years – tax collectors attempting to settle business tax debts through the personal holdings of company executives, which introduces some underlying legal and logistical questions that may have to be settled by the courts.

Since business bankruptcy protections aren’t available to marijuana companies, Unegovsky said, executives don’t have the same personal protections they do in other industries, and it means their personal bank accounts could get ravaged by tax collectors, if they’re not careful.

For some operators that have already been run out of business for one reason or another, Unegovsky said there aren’t many options. At some point, it’s likely that a desperate former company owner may try declaring personal bankruptcy to escape paying millions to the state of California for which his company was originally responsible – such as millions in unremitted sales taxes.

Perhaps the most interesting question will then become whether a federal court will allow that executive to escape paying huge tax sums through personal – not business – bankruptcy, under federal law, despite having trafficked in a federally illegal substance. That’s something that Unegovsky expects would take 10 years or more to get through the courts.

“At some point, somebody is going to pick up the battle axe and take this all the way through federal circuit court,” Unegovsky said.

But when and who is anyone’s guess. In the meantime, those two legal questions will hang like a shadow over any financially troubled cannabis company, particularly as the national market continues to tighten and more companies look for exits.

John Schroyer


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