October 2013

Tips on Appearing before Administrative Hearing Officers

By Heather Anderson-Fintak

© 2013 This article was originally published in the printed magazine communique, the official publication of the Clark County Bar Association. (October 2013, Vol. 34, No. 10). All rights reserved. For permission to reprint this article, contact the publisher Clark County Bar Association, Attn: COMMUNIQUÉ Editor-in-Chief, 725 S. 8th St., Las Vegas, NV 89101. Phone: (702) 387-6011.

Administrative hearings are not the norm for most attorneys. Yet, if a client has one along with other matters, it is best to know how to handle the situation besides just appearing at a hearing. Here are some tips regarding lesser common administrative hearings.

Unemployment Insurance Appeals Referee hearings
In general, former employees are entitled to unemployment insurance benefits if their employment was terminated without misconduct or they quit voluntarily with good cause. Review NRS 612 and relevant Nevada case law. Anyone with more than 90 days employment may be eligible for benefits.

The initial application can be handled by the individuals/claimants. A hearing will be scheduled only if there is an appeal filed by either the claimant or the employer. A hearing can be conducted over the phone or in person; in person hearings can be requested. Claimants and employers may be represented by anyone of their choosing; it does not need to be an attorney. This is the parties’ only opportunity to present evidence and testimony. Hearings are scheduled in 60-minute time slots. If the hearing requires additional time, depending on the appeal referee’s schedule, the case will be continued to another day, likely between ten days and two weeks later.

If possible, submit evidence ten days prior, to the scheduled hearing date. No opening statements are allowed. The first issue addressed is evidence already submitted and its relevance. Employers are the first ones questioned by the referee, if the claimant was terminated; if the claimant voluntarily quit, the claimant will be questioned first. Attorneys may question their clients after the referee, as well as cross examine the opposing party after the direct.

In general, the appeal referees do not like attorneys to come in and put on a show. Objecting and making a record is fine, but understand that the rules of evidence are only loosely followed. The referees are fact finders. They have the ability to interrupt, ask their own questions, and control the questioning. While I have once objected to a referee’s line of questioning and had my objection sustained, as a general rule, I would not recommend it.

At the end, each side has an opportunity to give a closing statement. Only cite relevant case law. There are actually a dozen relevant Supreme Court of Nevada cases on unemployment insurance benefits (Kolnick, Evans, Bundley, etc.) Do not demonstrate lack of preparation by citing workmen’s compensation or other employment law cases.

Decisions are not rendered at the hearing. Written decisions are sent out between one to two weeks following the hearing. An appeal to the Board of Review needs to be submitted within 10 days of receipt. Either party may appeal the final agency decision to the District Court in accordance with NRS 233B.

Southern Nevada Health District Appeal hearings
The Health District’s Environmental Health Division regulates restaurants, public pools, body artists, food handlers, illegal dumping, septic systems, public accommodations, etc. Administrative hearings are automatically set for Solid Waste Notice of Violations, but an aggrieved party may request a hearing for any Order or Notice within five days of receipt.

Hearings are scheduled at a minimum of once per month. Depending on the subject area, the relevant NRS/NACs are located at 439, 444, 446, and 447, as well as program regulations. Subpoenas can be issued upon request. Continuances are generally granted only once.

The hearings are conducted like public meetings. For example, there are two public comment periods and anyone is allowed to come and observe the proceedings. While all of the matters are calendared for the same time, cases can be called out of order. Attorneys who make their appearance known will be given priority.

This is the only opportunity for testimony and to submit evidence. There is no opportunity to provide an opening statement. Direct and cross examination of witnesses, as well as questions by the hearing officer, are allowed. The rules of evidence are loosely followed. At conclusion, the parties are allowed a closing argument. The Health District must prove its case by the preponderance of the evidence. The hearing officer will make a decision at the conclusion of the hearing and a written order is issued. Either party may appeal the case to the District Court in accordance with NRS 233B.

Other administrative hearings
Many other types of administrative hearings exist, such as Clark County administrative appeals, Regional Transportation Authority, Southern Nevada Regional Housing Authority, Nevada Health & Human Services’ Division of Welfare and Supportive Services, Social Security’s Office of Disability Adjudication and Review, etc. The number one mistake that attorneys make at these hearings is to show up and think that they are helping their client just by being an attorney. Without some basic knowledge of the procedural elements of the proceedings, prior acknowledgement of representation, and the particular area of the law, an attorney may be more harmful to a client proceeding pro se. The majority of these proceedings are organized in such a way to allow a pro se individual to have his/her opportunity for due process. Respecting these agencies’ proceedings and having a legitimate legal argument will go a long way in helping a client succeed. Lastly, obtain enough knowledge to advise a client when to settle a matter.

Heather Anderson-Fintak is the associate attorney with the Southern Nevada Health District and prosecutor for administrative environmental health cases. She has been with the Health District since October, 2012. Prior to the Health District, Heather was a legal services attorney for 10 years in Nevada and Maryland.

Offer in Compromise – A Method to Permanently Settle Taxes

By Kirk D. Kaplan, Esq., CPA

© 2013 This article was originally published in the printed magazine COMMUNIQUÉ, the official publication of the Clark County Bar Association. (October 2013, Vol. 34, No. 10). All rights reserved. For permission to reprint this article, contact the publisher Clark County Bar Association, Attn: COMMUNIQUÉ Editor-in-Chief, 725 S. 8th St., Las Vegas, NV 89101. Phone: (702) 387-6011.

You may not have heard of an “Offer in Compromise,” but you likely have heard these messages on the radio or TV: “We’ve helped thousands of people settle their tax debts for a fraction of the amount owed.” or “We stop wage garnishments, levies, property seizures, and unbearable monthly payments.” While highly touted and advertised, in reality, despite the IRS announced Fresh Start Program, where acceptance standards have been loosened, the Offer In Compromise (OIC) program provides relief to a very limited number of taxpayers nationwide–about 20,000 in 2011, and 24,000 in 2012.

OIC is an IRS program available to taxpayers to permanently settle their tax debt for less than the amount owed. Generally, an OIC is approved when the amount a taxpayer offers represents the most the IRS can expect to collect within a reasonable period of time (usually 24 months). In 2012, the IRS revised how it processed OIC applications, allowing flexibility in certain areas, and streamlining the financial evaluation process. The expansion aimed to cover a larger group of struggling taxpayers and promised to resolve tax problems faster. One change is that asset valuations and future income thresholds have been lowered. IRS, “Collection Financial Standard,” http://www.irs.gov/Individuals/Collection-Financial-Standards; see also, IRM §5.15.1, “Financial Analysis Handbook.” Another change is that the National Standard of allowed expenses has been expanded to include additional items, such as credit card payments, bank fees and charges, and the payments for loans guaranteed by the federal government for post-high school education.

The key to success in obtaining IRS acceptance of an OIC is to initially determine whether the client qualifies. Suggested initial inquiries are:

  1. Is the taxpayer currently involved in a bankruptcy proceeding, and does the bankruptcy affect the applicable tax period(s)?
  2. What are the amounts and type of taxes, and the period(s) involved?
  3. If the taxpayer is self-employed and has employees, has the taxpayer submitted all required federal tax deposits?
  4. What is the attitude of the taxpayer to resolve taxes due?
  5. Does a preliminary evaluation of net assets and income exceed the taxes due?
  6. Since the OIC is a last resort, has the taxpayer exhausted all other payment options with the IRS.? See IRS, “Offer in Compromise Pre-Qualifier,” http://irs.treasury.gov/oic_pre_qualifier/.

Types of OIC relief
Taxpayers can request OIC relief in two ways: (1) Doubt as to Tax Liability (DATL), and (2) Doubt as to Tax Collectability (DATC). Before applying for an OIC, the taxpayer should sign a Power of Attorney (IRS Form 2848) covering the returns and periods of the tax controversy, granting the practitioner authority to speak to the IRS on behalf of the taxpayer. Even though the client may provide tax returns, a practitioner should also obtain tax transcripts for the periods at issue. These transcripts provide information such as when and how the IRS has assessed the taxes and applied payments.

DATL is applicable if the taxpayer can present facts supporting a legitimate doubt regarding part or all of the taxes due. When applying for a DATL, no application fee or down payment is required.

The taxpayer must be clear on his or her intention to compromise the taxes based on a reasonable belief that the assessed taxes are incorrect. Internal Revenue Manual (“IRM”) § When the taxpayer presents information that raises doubt or supports facts that the assessment of tax is weak, the IRS will consider the DATL to avoid the hazards of litigation. IRM § One example of DATL is “innocent spouse” relief.

Caution should be foremost in mind when proceeding under DATL, because often taxpayers use the OIC as a way to protest the policy on taxation. Also, claims may be frivolous or do not raise a valid claim as to doubt of liability. Circular 230 (regulations governing practice before the IRS) imposes penalties on practitioners for disreputable conduct, including evading or attempting to evade income tax. IRM §; Circ. 230 §10.51.

In a DATC, the IRS’s decision to accept an OIC rests on whether the amount offered reflects the amount that can be collected by all available means, including administrative and judicial collection remedies. IRM § In determining the amount the taxpayer can pay, the IRS considers outstanding taxes; the taxpayer’s monthly income and allowable expenses; net realizable asset equity; amounts collectible from third parties through administrative or judicial action; and assets and/or income that an IRS lien cannot attach, such as income and equity in assets located outside the United States. Allowable expenses are for rent, food, clothing, etc., that the IRS has determined is typically paid in the location where the taxpayer resides. Practitioners who help taxpayers with OICs quickly discover that allowable expenses are often significantly lower than actual expenses, and that the IRS simply does not recognize other payments taxpayers are legally obligated to pay. As such, most OIC applications fail at this point.

An application for a DATC must be accompanied with an application fee and a deposit on the proposed settlement amount. IRC §7122(c). The deposit is either a Lump Sum or Periodic Payment. When a “Lump Sum Payment” is selected, the taxpayer pays 20% of the offered amount with the application, and agrees to pay the balance over 5 or fewer installments. With a “Periodic Payment,” the submitted down payment is equivalent to the first payment based on the proposed OIC terms that can extend up to 24 months. Regardless of the selected payment plan, the IRS will expect the payment schedule to be followed during the period the IRS evaluates the application.

The proposed DATC may be denied if the IRS determines the taxpayer can pay in full. A DATC can also be denied if the offer is too low, or the payment terms extend beyond 24 months. In the case of the latter two situations, the practitioner is encouraged to negotiate with the IRS until amounts and terms are mutually accepted or until an impasse is reached.

If the IRS ultimately rejects the DATC, the application fees and the 20 percent down (or the periodic) payment will not be refunded to the taxpayer because both are considered “payments on tax.” IRC §7122(c). In case the OIC application is rejected, when submitting any payment to the IRS, the practitioner should consider designating in writing where the payment should be applied when multiple periods are involved. Otherwise, all payments will be applied in the best interests of the government–first to penalties and interests and then to oldest period outstanding, if applicable.

Processing of OIC

In 2012, the IRS loosened its criterion to begin processing OIC applications where the taxpayer has failed to file tax returns or comply with tax payments. If these are the only issues, then the IRS will begin the process of evaluating the OIC application, but will not complete it until all tax returns are filed.
Once the IRS accepts the OIC application, in addition to payments according to the OIC, the taxpayer must timely file future returns and pay all applicable taxes during the payment period. If the taxpayer defaults on any of these requirements, the IRS will reinstate all compromised taxes, including penalties and interest, and will retain all payments and apply the same in the government’s best interest.

Denial of the OIC
If the taxpayer can pay in full, or has not exhausted all other payment options with the IRS, the OIC application will likely be denied. Sometimes, an installment agreement may be easier to obtain than an OIC. If the taxpayer owes $10,000 or less, he or she will likely qualify for an installment agreement to pay the balance and avoid a federal tax lien. Ultimately, the taxpayer carries the burden to prove that all other payment options have been exhausted, and that the taxpayer is incapable of otherwise paying the taxes in full.
An Offer in Compromise is an option of last resort to pay taxes due. It applies to a very limited number of taxpayers. The expansion of IRS’s Fresh Start Initiative in 2012 creates the opportunity for practitioners to help taxpayers resolve their tax debts.

An attorney and Certified Public Accountant, Kaplan D. Kaplan is a partner at Roland & Kaplan. In addition to cases involving IRS representation and U.S. tax controversies, his practice focuses on estate planning and funding, business structures and maintenance, probate and trust administration, healthcare directives, powers of attorney, and guardianship matters. Kaplan is admitted to practice in Nevada and Colorado and before the U.S. District Court – Southern District of Nevada, the U.S. Tax Court, and the Supreme Court of the United States.

Nevada’s New Medical Marijuana Law – Now What?

By Neal Tomlinson

© 2013 This article was originally published in the printed magazine COMMUNIQUÉ, the official publication of the Clark County Bar Association. (October 2013, Vol. 34, No. 10). All rights reserved. For permission to reprint this article, contact the publisher Clark County Bar Association, Attn: COMMUNIQUÉ Editor-in-Chief, 725 S. 8th St., Las Vegas, NV 89101. Phone: (702) 387-6011.

Despite the unsettled nature of federal enforcement of the federal criminal drug laws in the context of state medical marijuana laws, the Nevada Legislature enacted Senate Bill No. 374 during its recently completed 77th Regular Session, and the Governor signed it into law on June 12, 2013. Senate Bill No. 374 (“SB 374”) provides for the registration of medical marijuana establishments authorized to cultivate, dispense, and manufacture marijuana products for sale to persons authorized to engage in the medical use of marijuana. The full text of SB 374 can be found at https://nelis.leg.state.nv.us/77th2013/App#/77th2013/Bill/Text/SB374 . The new law amends and expands upon existing state law, NRS 453A.010 et seq., by now specifying the manner in which authorized patients are to obtain medical marijuana.

Implementation of SB 374
The Nevada Division of Public and Behavioral Health (the “Division”), an arm of the Nevada Department of Health and Human Services, is the state agency charged with regulating Nevada’s medical marijuana program and implementing the new law. By April 1, 2014, the Division must write and adopt regulations it determines necessary to: 1) prescribe the form for applications to become a registered medical marijuana establishment and medical marijuana establishment agent (i.e. employee of a registered establishment); 2) set forth rules pertaining to the safe and healthful operation of establishments; 3) establish maximum fees; 4) determine the amount of usable marijuana that a dispensary may dispense to registered patients; 5) protect the identity and personal information of each person who receives, facilitates, or delivers medical marijuana services; 6) establish a system to register and track physicians who advise patients; 7) establish categories of agent registration cards and criteria for training and certification; and 8) provide for and maintain a log of each person authorized to cultivate, grow, or produce marijuana. Any regulations adopted by the Division must comply with the Nevada Administrative Procedure Act, NRS 233B.010 et seq.

The new law allows registration of the following types of medical marijuana establishments: 1) an independent testing laboratory; 2) a cultivation facility; 3) a facility for the production of edible marijuana products or marijuana-infused products; and 4) a dispensary. An “independent testing laboratory” is a business which tests marijuana and related products to accurately determine: 1) the concentration of THC and cannabidiol; 2) whether the product is organic or non-organic; 3) the presence and identification of molds and fungus; and 4) the presence and concentration of fertilizers and other nutrients. A “cultivation facility” is a business that acquires, cultivates, supplies or sells marijuana and related supplies to dispensaries, production facilities, or other cultivation facilities. A “facility for the production of edible marijuana products or marijuana-infused products” is a business that acquires, manufactures, supplies or sells edible marijuana products or marijuana-infused products to dispensaries. A “medical marijuana dispensary” is a business that sells or dispenses marijuana or related supplies and educational materials to registered patients holding a valid registry identification card. The Division issues a registry identification card to persons exempt from state prosecution for engaging in the medical use of marijuana under NRS 453A.140. Registered dispensaries are also authorized to sell products to nonresidents who are entitled to engage in the medical use of marijuana in their home state.

Prospective medical marijuana establishment operators must submit an application to the Division. Applications will be available following adoption of the regulations described above, but no later than April 1, 2014. Each application must include the following: 1) a one-time, non-refundable application fee of $5,000 plus the actual costs incurred by the Division in processing the application; 2) the legal name of the proposed establishment; 3) the physical address of the proposed establishment; 4) evidence that the applicant controls not less than $250,000 in liquid assets; 5) evidence that the applicant owns the proposed establishment property or has written permission of the property owner to operate the establishment on that property; 6) fingerprints for each proposed owner, officer or board member of the proposed establishment for a criminal history report from the Federal Bureau of Investigation; 7) the name, address and date of birth of each proposed owner, officer or board member; 8) the name, address and date of birth of each person who is proposed to be employed by the establishment; 9) operating procedures of the proposed establishment to ensure adequate security measures and the use of an electronic verification system and an inventory control system; 10) proposed operating procedures for handling of products; and 11) proof of licensure or a letter from the applicable local government authority certifying that the proposed establishment is in compliance with applicable zoning restrictions.

Persons who volunteer or work as employees at medical marijuana establishments as agents must also be registered with the Division. Such persons must submit fingerprints to the Division for a criminal history report from the Federal Bureau of Investigation and pay an annual fee of $75. Persons who have been convicted of certain excluded felony offenses or are under 21 years of age cannot be registered as establishment owners, officers, board members or agents.

Limitations on Number of Registration Certificates and Criteria of Merit
The Division may only issue registration certificates to a limited number of dispensaries: 40 dispensaries for a county whose population is 700,000 or more (currently only Clark County); 10 for a county whose population is 100,000 or more but less than 700,000; 2 for a county whose population is 55,000 or more but less than 100,000; and 1 for any other county. With respect to non-dispensary establishments (i.e. independent testing laboratories, cultivation facilities, and production facilities), the Division must determine the appropriate number of registration certificates necessary to serve and supply the registered dispensaries. Among other limitations, any one person, group of persons or entity may not receive more than 10 percent of the registration certificates otherwise allocable in a county whose population is 100,000 or more.

In addition to the general application requirements discussed above, the Division must consider the following criteria of merit before issuing a registration certificate: 1) the applicant’s total financial resources; 2) the applicant’s previous experience operating other businesses or nonprofit organizations; 3) the applicant’s educational achievements; 4) the applicant’s demonstrated knowledge or expertise with the compassionate use of marijuana to treat medical conditions, if any; 5) whether the proposed location of the proposed establishment would be convenient to serve the needs of registered patients; 6) the likely impact of the proposed establishment on the community in which it is proposed to be located; 7) the adequacy of the size of the proposed establishment to serve the needs of registered patients; 8) whether the applicant has an integrated plan for the care, quality and safekeeping of medical marijuana from seed to sale; 9) the amount of taxes paid to, or other beneficial financial contributions made to, the State or its political subdivisions by the applicant; and 10) any other criteria of merit that the Division determines to be relevant.

Successful applicants must also pay a fee, in addition to the application fee, for the initial issuance of a registration certificate as follows: $30,000 for a dispensary, $3,000 for a cultivation facility, $3,000 for a production facility, and $5,000 for an independent testing laboratory. Annual renewal fees range from $1,000 to $5,000.

Excise Taxes

An excise tax of two percent is imposed on each wholesale sale of marijuana products between establishments, and on each retail sale from a dispensary to an end user. The excise tax on retail sales is in addition to the state and local sales and use taxes that are otherwise imposed on the sale of tangible personal property. Seventy-five percent of the revenue collected from these excise taxes must be deposited to the credit of the State Distributive School Account in the State General Fund, and twenty-five percent to the Division to pay its regulatory costs.

Although Nevada is one of twenty states and the District of Columbia to legalize medical marijuana consumption, the issuance of a Nevada registry identification card or an establishment registration certificate does not exempt the holder from potential prosecution under federal law. However, the U.S. Department of Justice recently announced it would take a “trust but verify approach” to the state laws, while reserving its right to file a federal preemption lawsuit at a later date. There are also at least two bipartisan bills pending in Congress, and the U.S. Senate Judiciary Committee has scheduled a hearing in September to discuss the ongoing conflict between state and federal marijuana laws, which together could eliminate the conflict or at least further clarify federal enforcement policy.

Neal Tomlinson is a partner at Snell & Wilmer L.L.P. where his practice is concentrated in the areas of administrative law and government relations, including regulatory compliance, licensing, and related business litigation. He has been selected to the 2013 Mountain States Super Lawyers® in Administrative Law, and can be reached at ntomlinson@swlaw.com.