IRC § 280E, Cannabis Taxes, Compliance, Audits,
Litigation and Collections
Cannabis Businesses face a challenging and confusing tax regime - including special state taxes, frequent and detailed audits, and Internal Revenue Code Section 280E. Cannabis Business cannot afford to gamble with their tax compliance - they are very likely to get audited and their tax compliance will determine whether they qualify for licensing.
While Cannabis Businesses are legal many states, they remain illegal under Federal Laws including the Controlled Substances Act - which labels cannabis a level I controlled substance. As a Level I controlled substance, cannabis businesses are subject to Internal Revenue Code § 280E. Section 280E disallows deductions for ordinary and necessary business expenses but allows deductions for Cost of Goods Sold (COGS). These limitations are very important in opening and operating a cannabis business.
Cannabis Tax Compliance
A cannabis business (depending on the state) could be required to file in excess of 50 tax returns per year. Moreover, proper reporting of allowable COGS Under I.R.C. § 471 requires contemporaneous accounting and an understanding of state cannabis laws, the individual cannabis business, and the current legal frame work in which cannabis businesses must operate and cannabis taxes are reported and paid. NJRLAW helps Cannabis Businesses understand their tax compliance requirements and properly report and pay their tax liabilities. For Cannabis Businesses with outstanding taxes or liabilities, NJRLAW can secure the collection solution that will allow for continued licensing as a cannabis business or help to qualify for first time licensing.
Cannabis Tax Audits
The IRS has special audits groups that conduct cannabis tax audits in order to enforce compliance with IRC 280E and other tax sections. These groups determine the allowable level of COGS and the tax liability that results when ordinary and necessary business expenses (if deducted) are disallowed. In Colorado, Oregon, Washington and Alaska, recreational cannabis businesses face special taxes and frequent audits. Along with the specific cannabis taxes, audits typically include Sales and Use Taxes, Excise Taxes and all other taxes administered by the authority. Nick Richards is a former IRS tax attorney representing cannabis businesses involved in tax audits - California audits, Colorado audits and IRS Audits.
Cannabis Tax Litigation
In most cases, NJRLAW is able to resolve a tax matter or audit without litigation or trial. But when trials are necessary, NJRLAW will protect your rights and provide the strongest advocacy possible in resolving your matter. As a form IRS Trial Attorney, Mr. Richards understands and has vast experience with the IRS and Tax Court. If you have a question about Cannabis Tax Litigation please visit our Tax Litigation page and give us a call, Nick would be happy to discuss your case.
Offers in Compromise
States that allow legalized cannabis sales require cannabis businesses to maintain and certify their tax compliance - lack of compliance can result in a suspended or revoked license. Businesses with tax liabilities from I.R.C § 280E (and other taxes) must be in an approved payment plan or offer in compromise. Recently the IRS announced that it will consider offers regarding cannabis related tax liabilities - but significant limitations apply. NJRLAW understands these limitations and has the experience necessary to secure a resolution and protect your valuable license. We will help insulate you from the tax authority and fight to secure a tax resolution that allows you to continue operating.
UPDATE: Form 8300
The cannabis industry is a cash intensive business where managing, accounting for and securing sales revenue present unique and multiple challenges on a daily basis. Adding to the burden, businesses that receive cash in excess of $10,000 are required to file Form 8300 and report specific information for each qualifying transaction. In the past, the IRS has used Form 8300 audits to enforce compliance in cash intensive industries. Failure to file could lead to civil and even criminal penalties.