![]() Those in the cannabis industry are already well aware of the dreaded IRS Tax Code Section 280E, which prevents cannabis businesses from reducing their taxable income by their business expenses. 280E disallows normal business “deductions” for cannabis companies, and creates huge income tax liabilities. What many may not be aware of already, though, is that it also prevents cannabis companies from tax settlements. Normally, when a tax liability is assessed, the IRS has up to 10 years to collect from the taxpayer. During that time, taxpayers may be allowed to pay in installments, which are usually around six years for individuals and three years for businesses, but the IRS can allow for certain installment cases to be up to 10-years. After a few years of payments, the IRS may also sometimes offer a compromise of full debt settlement for pennies on the dollar. But those settlements are off the table for the cannabis industry. Many cannabis businesses facing huge tax debt that they can’t pay are waiting and hoping for Federal change to see if they can someday settle their taxes. If a cannabis business is in tax debt, Bloomberg tax experts say it’s crucial for them to settle their state and local taxes first, because the IRS provides credit for state payment plans. Additionally, the states can be more aggressive in collections and a business can lose their license. Once the state taxes are under control, the taxpayer can focus on its federal tax debt. One very important difference is whether the cannabis company owes the tax debt or whether it is owed by the individual owners. For owners with tax debt, offers are unavailable, and the IRS can collect against their personal assets and income. For corporate debt, the individual owners are not liable, and the IRS collection powers are limited to the company’s profits and assets (although the agency can’t seize the marijuana). If there is no profit, and the company is current, the IRS will stand by and wait. Hopefully the cannabis industry will get some federal legislative tax relief - and soon! Comments are closed.
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