As the New Hampshire Attorney General continues to examine the legality of the state Liquor Commission’s policies for large all-cash sales at state-run liquor stores, the agency is retaining a private law firm, as well as a tax advisory company, to assist in what it calls ongoing "discussions" with the Internal Revenue Service.

The Department of Justice says it has hired the Concord-based law firm Rath, Young and Pignatelli, as well as accounting firm PricewaterhouseCoopers, to work with the state in its dealings with the IRS concerning the Liquor Commission’s large volume cash sales.

Those cash sales became the subject of a high-profile investigation last year after Executive Councilor Andru Volinsky accused the Liquor Commission of turning a blind eye, or possibly aiding, potentially illegal transactions. He claimed that out-of-state bootleggers, mainly from New York, visit state-run liquor stores near the southern border, making huge all-cash purchases at multiple outlets, allegedly structuring their transactions to avoid IRS scrutiny.

Hennessy cognac, the preferred spirit of the bootleggers, continues to be stocked in massive quantities at stores near the border, while just a handful of bottles are often available at stores farther inland.

Last November, the Attorney General’s office released a brief report that found the Liquor Commission’s policies are “consistent with applicable state and federal laws,” but said that it would seek out a final ruling on the matter from the IRS.

However, more than half a year later, the agency says it hasn’t yet submitted a formal request for a ruling, and may decline to do so.

That delay raises concerns for Volinsky, who believes the Attorney General, after consulting with outside tax and legal experts, may be hesitant to submit a request to the IRS because it has “concluded that there is a grave risk the IRS will rule the questionable conduct is not legal.”

Volinsky, who criticized the timing and brevity of last November’s report, says the hesitancy to fully engage with the IRS “reflects poorly on the state Liquor Commission and its legal advisors and suggests it is time to discontinue illegal bootlegged sales that facilitate money laundering.”

The legal issue centers on an IRS regulation that requires businesses to report individual transactions involving $10,000 or more in cash. Volinsky alleges that the Liquor Commission is allowing out-of-state bootleggers to circumvent this policy, which was enacted following the September 11th attacks to crackdown on money laundering. Some customers visit multiple liquor stores in the same day, spending just under the $10,000 threshold at each store, and then drive their van-loads of alcohol over the state line for resale.

The IRS has also questioned the state’s handling of large all-cash sales at the state’s 80 or so liquor stores. In 2018, IRS agents made surprise visits to the Liquor Commission’s headquarters in Concord as well as several retail stores in the state, where it sought information on specific transactions.

Federal tax authorities have taken an interest in New Hampshire’s handling of large cash liquor sales for years. The IRS investigated the practice in 2012; and in 2015, the state Attorney General worked with the Liquor Commission to revise its large volume sales policy.

In its November report, the Attorney General’s office says it believes the Liquor Commission qualifies as a “governmental unit” and is therefore exempt from the IRS rule. The agency did write, however, that “there is a long overdue need for finality and certainty” on the issue, and that it would engage with the IRS for a decision on the matter.

According to a spokesperson for the Department of Justice, the agency began its discussions with the IRS late last year, but those talks were delayed by the government shutdown. The Attorney General’s office reengaged with the IRS in late March.

Associate Attorney General James Vara, who was leading the agency’s inquiry into the Liquor Commission, has since left his position. According to state records, Vara now works as an attorney for the Liquor Commission.

Sales to out-of-state customers traditionally make up an important source of revenue for the Liquor Commission, which transfers its profits to state coffers.

The surge in all-cash purchases have led to a number of internal policy changes, including the installation of cash-counting machines at liquor stores, employee trainings involving Monopoly money, and a multi-million dollar contract with an armored car company.