CONCORD, NH – The State Liquor Commission (SLC) and its employees are not required to report large cash sales of more than $10,000 to the IRS because “governmental units” are exempt under federal law.
Attorney General John M. Formella on Friday released a letter from the IRS concerning that ruling along with his report regarding large volume cash sales (LVCS) by the SLC, an investigation which was triggered in February 2019 by then Executive Councilor Andru Volinsky.
He wrote a letter to the Governor and then Attorney General Gordon MacDonald concerning a $24,000 sale he witnessed on Feb. 3, 2018 at the State Liquor and Wine Outlet in Keene.
The sale also was observed by Richard Gulla, the State Employees’ Association President.
In his letter, Volinsky said a woman named Anna called the Keene store and asked the staff to pull together an order for her totaling more than $24,000, the majority of which was Hennessy cognac.
The woman and a man arrived at the store a little later that day to pick up the order. Volinsky said he saw the man remove a “a very large wad of cash from his pocket and give approximately half of it to Anna.”
They then used the cash to each make purchases just under the $10,000 threshold, with the remainder of the transaction – about $5,600 – charged to the man’s credit card.
Volinsky voiced concern that the man and woman had structured their transaction to avoid the $10,000 reporting requirement.
Pamela Wilson Fuller, IRS Senior Technician Reviewer Procedure & Administration, said in a Nov. 18, 2020 letter to Senior Assistant Attorney Geenral Jill A. Perlow that the state didn’t have to report those sales because “governmental units” are exempt from reporting requirements.
The IRS ruling also said that neither state nor federal laws impose any limit on the amount of cash that can be spent at the liquor stores, or require reporting of LVCS above $10,000. Such transactions, she said, are entirely lawful.
“This IRS ruling and DOJ report provide a long-anticipated and definitive end to an attempt to smear the reputation of one of the nation’s leading retailers and most successful beverage alcohol control states,” said NHLC Chairman Joseph Mollica. “As we said from day-one, NHLC followed its statutory obligation to maximize revenue for the taxpayers of New Hampshire, which we have done for over 85 years, generating more than $4 billion for the State and providing an unrivaled experience for tens of millions of customers from across North America. We thank the IRS and DOJ for their efforts.”
When reached for comment Friday, Volinsky said he hasn’t read the report yet but will provide a response once he has. On Saturday he provided the following detailed comment with hyperlinked references:
Apparently late on Friday, March 25, 2022, more than a year after receiving a private IRS ruling, the NH Department of Justice (NH DOJ) released a statement and report concerning its investigation of bootlegged sales made in cash in excess of $10,000 at state liquor stores near New Hampshire’s borders. The report purports to respond to concerns raised by former Executive Councilor Andru Volinsky in February 2018 and reported in writing to Governor Sununu and then Attorney General Gordon MacDonald shortly thereafter. The report also discusses a private letter ruling issued by the IRS in February 2021 that concludes that cash transaction reports (form 8300) are not required when suspicious sales are made in cash by governmental units such as a state. The IRS accepted, without analyzing, that liquor sales are an integral part of New Hampshire state government. Importantly, the IRS stated: “The IRS has not verified any of the material submitted in support of the request for ruling and such material is subject to verification on examination. This letter does not constitute a ruling that Entity 2 [the NH State Liquor Commission] is an integral part of Entity 1 [the State of New Hampshire.]”.
Said Volinsky, “First, I am glad that the state followed my advice and finally obtained a direct ruling from the IRS about their bootlegging practices that some have characterized as akin to ‘organized crime.’ Second, I would be concerned by this ruling as the ruling hinges on the legal conclusion that the State’s Liquor Commission sales monopoly is an integral part of the state. Given that 33 states do not operate similar monopolies, it is hard to understand how maintenance of a liquor sales monopoly is integral to the existence of the state of New Hampshire. Third, the state’s claim that the cash involved in these transactions is not related to illegal activities fails any test of credibility.” [See this New York Times story from 2018 “Tracking Graft, From the Bootlegger to the Mayor,” which involves New Hampshire.]
Finally, it is worth recognizing and thanking the brave women and men who work in state liquor stores who brought their concerns to me despite pressure from the Liquor Commission to remain silent.
Volinsky had asked then-attorney general Gordon MacDonald to investigate whether the SLC was willfully instructing employees not to report large, cash purchases of liquor and whether that allowed out-of-state buyers to illegally bring the alcohol back home and even resell it.
After Volinsky filed his complaint, the SLC fired an employee who was involved in the Keene sale.
The SLC, which issued a news release in response to the attorney general’s report said the IRS findings and NH Department of Justice report were in response to a Feb. 3, 2018 “sting operation” orchestrated by Volinsky and Gulla and a subsequent letter from Volinsky, raising unfounded accusations about NHLC’s sales practices and accepting money made from “illegal trafficking, whether in guns, drugs or humans.”
The Attorney General said in his report that there is no evidence that money from those large cash sales comes from illegal activity.
“There is no evidence to support the assertion made by Councilor Volinsky in his Feb. 13, 2018 letter that the money for LVCS comes from ‘illegal trafficking, whether in guns, drugs, or humans.’ Councilor Volinsky does not have any personal knowledge about the genesis of any cash being used to purchase liquor at the SLC and instead the concern stemmed from general information he gained as a white-collar criminal defense attorney,” according to the report.
The report also said that the state is under no legal obligation to enforce laws of other states regarding the purchase and transportation of alcohol across borders and faces no legal exposure for the failure to do so.
Volinsky, in his letter, also raised the issue of the large cash sales exposing the state to potential lawsuits from neighboring states for “facilitating efforts to avoid their taxation schemes.”
The attorney general, however, said the SLC has neither the authority nor a legal obligation to enforce the laws imposed on individuals by other states in regard to alcohol sales or purchases.
“As a result, there is no basis for another State to sue SLC for its handling of LVCS and the AGO (Attorney General’s Office) would vigorously defend against any such lawsuit.”
The attorney general said the events that happened on Feb. 3, 2018 at the Keene liquor store constituted an “isolated and serious violation of the SLC’s policies and practices,” and that the SLC, after being notified by staff about what transpired, conducted an internal review of the event and took necessary corrective actions.
The attorney general, in the report, also criticized the actions of Volinsky and Gulla.
He said it is expected that state officials use appropriate methods in addressing serious concerns, such as potential violations of law or policy.
“This did not occur here,” according to the report. “It is undisputed that an elected official and the president of one of the state’s employee unions observed what they knew to be violations of SLC policy, and what Councilor Volinsky believed to be a violation of federal law. Yet, neither made the decision to promptly contact SLC leadership or law enforcement. Officials or citizens conducting their own investigations may imperil state government functions and law enforcement efforts, and put not only themselves, but the public at risk. Individuals with concerns about state operations should contact the appropriate state officials or law enforcement and should not attempt to conduct their own investigation.”
Since 2015, the SLC, “to promote a culture of honestly and prevention of fraud, criminal conduct and loss prevention” implemented a policy requiring the reporting of cash sales of more than $10,000 to the IRS. Even though the IRS has now said SLC is not required to do that, Formella said the policy remains in place.