![]() A couple days ago we spoke about tax code 280E. What it is, and why it’s so detrimental to cannabis businesses. Today, we’re looking at more tax information, specifically we’re looking at how the IRS is actively prioritizing auditing the cannabis industry. And that’s not a guess, or a presumption…. that’s coming from their own documentation. Earlier this year, MJBizDaily obtained 212 pages of internal IRS documents through the Freedom of Information Act. They then asked three attorneys who have extensive cannabis industry and federal tax law experience to review it. What they found was detailed information on how IRS agents have been reporting for years that auditing cannabis companies is a better return on their time than auditing mainstream industries. Cannabis businesses have generated far more revenue, per hour for the agency than audits of mainstream industries, sometimes as much as four times more. Because of this, the IRS have studied and refined their methods for examining cannabis industry tax returns, and are really putting emphasis on collecting money from cannabis audits. One of the attorneys who reviewed the IRS documents, Denver-based tax attorney Nick Richards, is a former IRS lawyer that’s worked with cannabis businesses since 2013. He said of their documents, “It clearly indicates that the IRS is interested in auditing the cannabis industry. What we see in here, from the results … is they feel like they’re getting good bang for their buck.” In response to this internal direction to go after cannabis businesses, the IRS is hiring 10,000 new employees. Part of this hiring is to help them work through 20 million backlogged, unprocessed returns that are leftover from the pandemic. But another reason for the hiring is pursuing audits of the cannabis industry. Tax experts, such as Denver tax attorney Rachel Gillette of Holland & Hart firm, have said they are seeing a significant increase in audits of cannabis companies. So all those working in the industry, from budtenders to cultivators, delivery drivers to CEOs, even those in ancillary businesses, such as selling equipment or gear, all need to be aware that they are now targets for an audit from the IRS. Some areas of particular concern to be aware of, which the IRS specifically looks for errors in with cannabis businesses, include: • Improper deductions • Missing supporting documents • Inaccurate reporting of gross profit • Late or unfiled taxes • Consecutive losses • Comingling funds from one business to another, or from personal to business • Unrecorded cash sales • Failure to properly use Form 8300, which is an IRS requirement that must be filed any time $10,000 in cash is part of a business transaction. So if your business, or your employment, has any connection to cannabis, make sure you use extreme caution when keeping records and filing your taxes. And consult a CPA or attorney if you have questions. Comments are closed.
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