Jack Heald: Welcome back everyone to the OZExpo Podcast. I'm your host Jack Heald happy to have you here with us today. It's a Monday morning, but I feel great. I have here with me today, James Mann who is a partner with the law firm of Greenspan Marder. James, welcome to the show.
James: Hi Jack. How are you? Oh, it's Greenspoon.
Jack: You know what, every time I look at that, I get it wrong. Greenspoon, into as we know more. Let's just start kind of at a high level and then drill down into some of the interesting details.
James: Sure. Like most people, I kind of ignored the Opportunity Zone statute when it passed as part of a big tax cuts and jobs bills act. I didn't really focus on it until I joined Greenspoon Marder last October. And Greenspoon Marder is more or less based in Florida, although we have offices everywhere else now. And as soon as I joined, people from Florida started calling me and saying, tell us about Opportunity Zones and how we can invest. So, it seemed like a good idea for me to sort of learn more about them. And once you get past the initial layer of complexity and the fact that the statute is not the clearest drawn ever, it's really an incredible set of tax incentives. So, it's been a real pleasure for me to work with the clients in my firm Opportunity Zone projects, not just in Florida, but many other states as well.
Jack: I want to follow up a little bit with your background as assistant attorney general in the tax division. Is that what you said?
James: A deputy assistant.
Jack: Deputy attorney general. I don't have any idea what that position does in that role. I guess you prosecute tax cases?
James: Well, the client of the tax division is the IRS.
James: As we are fond of saying, we have a client who can't fire us. And the tax division litigates a number of different types of cases. It prosecutes all of the criminal tax cases, but it does a lot of civil tax work. And in my case, I was in charge of the federal appellate tax litigation function.
James: So, I've argued tax cases in front of a bunch of circuit courts of appeal and the tax division works closely with the IRS, with Chief Counsel's Office of IRS of course. And it's just another part of the administration of the tax laws of the U.S.
Jack: So, my guess is that because you've sat on the other side of the table because you've argued cases from the other side, that probably gives you a little better insight into how to approach the taxation side of Opportunity Zone cases as well. Or more accurately, I would say, to guide clients around the possible obstacles.
James: Well, I like to think so. Certainly that's the claim I make to clients and I think it's probably true. One thing is that the people who administered this tax law are going to do so with an eye towards the objective of this tax law. And it's clear that the people at Treasury who wrote the regulations for Opportunity Zones were doing their hardest, doing their best and I think they did a good job of trying to implement what the drafters in Congress intended for this, trying to stimulate economic activity as much as possible in these relatively depressed areas.
Jack: Repeat how you said that they want to evaluate the cases based on the intent of the folks who put the law together.
James: Well, I'm saying with respect to Opportunity Zone transactions in particular.
James: They're going to look at it based on trying to further the ends of the legislation and the IRS always looks at what happens in the transaction, whether it's genuine, whether the people were actually investing money took real risks and whether the investment is designed to function as an Opportunity Zone investment in the way that the drafters of the legislation intended.
Jack: Okay. That's actually good news. I had an interesting run-in with the IRS years ago when I screwed up my taxes for my trading business. And gosh, I probably should have had somebody like you on my side at the time. I see that you've got expertise or at least you advertise expertise and in three pretty significant areas: financial services, renewable energy, and cannabis. Let's talk about the financial services side because that's probably the simplest one to talk through.
James: Sure. Well, after I got my MBA, I worked in the Ernst & Young and Deloitte & Touche national offices and the International Tax National Offices and I focused on derivative financial products. Swaps, options and warrants and things like that in the cross-border context. So from there, actually I noticed what my clients were doing and how much they were making. So I went to work at Goldman Sachs and Société Générale, a big French bank.
James: And there again, it was very international tax focused. It was cross border, highly structured financial transactions and at Société Générale the big French bank, I was the North American head of tax and debt advisory and the bank was very interested in investing in renewable energy and that is very tax driven as I'm sure you know. So I became very interested in the renewable energy area and eventually I left the bank to join a renewable energy firm. So I did a lot of solar development work.
Jack: Okay. So, let's move forward to renewable energy. First of all, let's talk about just from the technology standpoint. What are the big categories of renewable energy and talk about any of the interesting tax situation's wrapped around those. I'll have a follow up question too.
James: Surely. I focus mostly on solar, which is a big category. I guess the other biggest category is wind. And then there are smaller categories like geothermal and other things. I think mostly, solar and wind and the solar context, the basic tax issues that the tax incentives provided in the tax code for solar typically cannot be taken by the people who are actually operating the solar. So, you have to find a way to transmit the tax incentives to investors who can use them, like the tax credits and the depreciation.
Jack: I'm here in Arizona and we have lots of sun and I've been absolutely baffled that solar doesn't play a bigger part of our entire energy fabric. Are there tax reasons for that? Is that industry resistance? And I know you may not be an expert in Arizona, but I would suspect you’ve got some insight.
James: In every sunny state where there's not a lot of solar, you need to look at the state legislature and the state public utility commission. Many utilities have been very resistant to solar. And I can't say anything in particular about Arizona, but in many states the utilities fought state level subsidies or requirements to install solar and other forms of renewable energy, just tooth and nail because they didn't want to have anything to do with it. And it was complicated. It was new. So in many states where there's not more solar, those are the kinds of reasons. It's not really reasons to lie in the federal tax code.
Jack: Okay. I was hoping so, but I figured I'd ask an expert. Alright. Let's talk about cannabis, and we'll, dive deeper into the Opportunity Zone elements of it. But first let's just talk about your expertise in cannabis. What drove your interest in that?
James: Again, it was a function really of demand. When I joined Greenspoon Marder, Greenspoon Marder has a real expertise and commitment to cannabis law and they have cannabis legal professionals in Denver and Los Angeles and Phoenix and in Florida. And so, as part of my providing general tax advice to business transactions, they said, gee, you need to look at these cannabis mergers and acquisitions and cannabis financial transactions. So, I became involved in it in that respect. And then also we have a cannabis audit practice. Many people involved in cannabis in states like Colorado and California are subjected to pretty intense IRS scrutiny. And we've been involved in a lot of those audits. And in litigation.
Jack: There's this weird gray area where cannabis is legal at the state level and illegal at the federal level. And this is probably fodder for an extremely long conversation, which we won't get into, but it does lead us to the Opportunity Zone elements of cannabis. Talk a little bit, I know you're going to be speaking or moderating a panel at the OZ Expo here in a couple of weeks. Can you at least give us a preview, a taste, of the intersection of cannabis and the Opportunity Zone program?
James: Surely. Let me start first by talking about the business opportunities. We have clients who are very interested in developing cannabis processing facilities, growing warehouses and things like that in Opportunity Zones, both in rural Opportunity Zones like in the desert, but also in the city. We have clients who are developing Opportunity Zone sites in Los Angeles and Las Vegas for example. And those projects really do fit in to the overall scheme of the Opportunity Zone in that they really will provide good jobs to people who reside in these economically depressed areas. So we think these are projects that are very squarely within the intent of the drafters of the Opportunity Zone statute.
Jack: That's on the production side.
James: Right. And on the Opportunity Zone side, one of the issues is that in the Opportunity Zone statute, there's a list of things that the Opportunity Zone incentives won't support. And it's not a long list of things, but people say that because this list of things are things that are deemed to be bad by Congress and cannabis is federally illegal. People are concerned that the Opportunity Zone tax incentives might not be available to cannabis projects. And we feel strongly that this is not the case. And that's, I think one of the main points that we hope to make it in our panel at the OZ Expo.
Jack: Is there anything, it seems like I stumbled onto something here just in the last week, some sort of new activity at the federal level. I wish I could remember.
James: Yes. Well I can, I can tell you about that because my firm was very involved in the site of activity in DC. We have a lobbying arm. There are bills that have been introduced in Congress. The Safe Act and the States act one would make cannabis more legally acceptable to the banking system, which it's not now.
James: The other would rationalize and harmonize cannabis state laws and the federal law. I would say in effect that in states where cannabis is legal, the federal law won't really apply because we're going to let the states decide this manner, there's a lot of legislative activity in Congress. How far those bills will get, we don't know. There's a lot of support certainly in the house side. These bills have many cosponsors from both sides of the aisle. So we're optimistic.
Jack: Outside of tax practice, what are you best at? What's something that you are just really, really good at when you're not at work?
James: What am I the best at what?
Jack: What is something that you were really, really good at that you enjoy outside of work?
James: Well, my house is a bit of a menagerie. I keep turtles and fish and I'm very good parent to the turtles and fish.
Jack: Why turtles and fish?
James: I don't know. I've always liked reptiles and fish. I've always been fascinated by them. I was an insect collector as a child, and I really don't need my pets to be warm and cuddly.
Jack: I've always enjoyed fish. There's something very Zen about a fish tank. So, that's why I didn't ask you about the fish cause I get that. But the turtles is, that one's just kind of odd to me. I have a friend who lives a little farther out in the desert in a fairly nice neighborhood, right up against the Superstition Mountains and down the street from her house, there is an African tortoise that’s about the size of my desk. He's just a massive thing. His name is Bob and he's just part of the neighborhood. But he lives outside. You know, it's hard to think of him as a pet more than just a nonhuman resident of the neighborhood. So…
James: Well, you know, these are water turtles. So you buy them when they're the size of a quarter and now they’re the size of dinner plates, so their tank gets bigger and bigger. So it's an increasing level of commitment.
Jack: What do you feed them? How do they, what do they eat.
James: There are special foods they eat; they provide all of their nutrition.
Jack: Here's my thought. I'm gonna, I'm gonna lay out the background here. My younger son, when he was growing up, we thought he might need a pet and we asked him about pets and he said he wanted an iguana. Okay. So, we said, “Okay, we'll see about that.” And I did a little research into what is involved in taking care of the iguana. And it turns out that caring for a reptile is a lot more complex than caring for a mammal apparently. And since this was a kid who couldn't remember to change his underwear regularly, we figured that probably an iguana was out of the question. So that told me that there are some personality traits that make for effective care of different kinds of animals. And so, the thought that occurs to me as I listened to you talk. Okay, this guy who's a tax attorney picked up an MBA. I have a suspicion there was more to picking it up and then just picking it up and also cares for reptiles. What are those personality traits in your assessment?
James: Well, let me put it this way. It shouldn't surprise you that somebody who is an insect collector in his youth grew up to be a tax lawyer.
Jack: See, I knew you weren't boring. Gosh. Do you have a favorite bug?
James: It's the praying mantis.
Jack: And isn't that the one that tears the head off of its mate after it copulates?
James: Well, yes. Maybe there's a lesson in that for us, but I'm not certain.
Jack: One of the things that, this is one of my favorite questions. You get to be king of the world for a day and you get to solve one problem and one problem only. So, you've got one day, and you get to solve one problem, but you are the king of the world. So, what's that one problem you are going to solve?
James: Well, because I have limited vision and imagination being a tax lawyer, I would fix the mass transit system in New York City.
Jack: Do you know my daughter has comments about that as well. Okay. So how do you fix it?
James: I'm not sure I know how. I think part of it has to do with reforming the people in charge of it. It's very expensive to build and operate the mass transit system in New York City and I think that may have something to do with the unions involved.
Jack: Does it have something to do with the fact that it's several hundred feet under a river as well?
James: Oh, there are real costs of operating the subway system, but our subway system operates at a much higher cost than any other comparable systems like Paris or London.
Jack: Oh really, I didn't know that. It's something else. I'll be darned. Uh, as we wrap up today, are there any things, any specific questions that you would like to answer about Opportunity Zone investment, taxation, business? Just things I haven't asked. I'm interested in the cannabis sin business problem, but I think you've addressed that.
James: The real issue with cannabis and Opportunity Zones is that many tax so-called professionals, say they're just hand-wringers. They say, “Oh, well cannabis is federally illegal and I don't know, there must be risks and that's just shows an incredible lack of thought and incredible lack of tax knowledge.” And it is really a shame that people's handwringing and just assertions, retard investment in these really meritorious cannabis projects, projects that would really employ people and help people, not just building another luxury hotel in a warehouse district.
Jack: Well I have to say your self-deprecation is appreciated. But I don't think there's anything boring about you.
James: Oh, thank you.
Jack: If folks want to get ahold of you, get a hold of James Mann or Greenspoon Marder to talk about Opportunity Zone help, what's the best way for them to do that?
James: My email address is simple. It's firstname.lastname@example.org and my number is 212-524-4991. I can be reached either of those ways pretty much anytime.
Jack: Very good. And I will remind our listeners that information will also be available on the podcast website. Well, James, any last words for us before we sign off?
James: No, this has been very enjoyable. It was entirely not what I expected, which is probably good.
Jack: Yeah, I do take a little different at a different approach. I figure all the technical stuff people can generally get almost anywhere. Um, I'm interested in the people behind the technical stuff because I think at the end of the day, we make those decisions about who we work with and how we work based on the human, the human element. So that's why you do it this way. Well, I am Jack Heald for James Mann. This is the OZExpo Podcasts. Thanks for listening today. Come back again soon and we will talk to you next time.Announcer: This podcast is for informational purposes only and does not constitute legal tax or investment advice. For specific recommendations, please consult with your financial, legal, or tax professional.
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