 In the post-pandemic world, most businesses are trying to get back to speed. That includes the IRS.
The federal tax agency is hiring 10,000 new employees to help them work through 20 million backlogged, unprocessed returns. And it looks like one of their main targets is the cannabis industry. Tax experts have said they are seeing a significant increase in audits of cannabis companies. (Rachel Gillette, a Denver tax attorney with the Holland & Hart firm as per MJ Biz Daily) John Schroyer, Chief Correspondent for Marijuana Business Daily, wrote a fascinating article on how internal IRS documents show that the IRS has been fixated on cannabis companies, because they find those types of audits to be so lucrative for them. Marijuana Business Daily 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. The internal IRS documents detail how IRS agents have been reporting for years that auditing cannabis companies is a better return on their time than auditing mainstream industries. They have studied and refined their methods for examining cannabis industry tax returns, and are really putting emphasis on collecting money from cannabis audits. Denver-based tax attorney Nick Richards, who is a former IRS lawyer that’s worked with marijuana businesses since 2013, said, “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.” IRS audits of marijuana businesses have generated far more in unpaid taxes, or revenue, per hour for the agency than audits of mainstream industries such as automobiles – up to four times more in certain cases. The primary reason why they are able to collect so much money from these audits is from tax code 280E. This prevents cannabis companies from claiming standard deductions on their federal tax returns. Basically, the only tax deduction a cannabis company CAN take are the “cost of goods.” GreenGrowth CPAs, a leading national cannabis accounting and advisory firm, has a staggeringly long of things you can’t deduct. Some highlights from it include: • Advertising • Charitable donations • Employee payroll • Equipment, office supplies, software, hardware, and furniture • Health insurance • Legal fees • Rent • Subcontractors and consultants • Theft • Utilities • Workers Comp And one more thing for the cannabis businesses to be extra cautious of: experts say that the IRS also appears to be really focusing on Form 8300, which is an IRS requirement that must be filed any time $10,000 in cash is part of a business transaction. Even if you feel pretty comfortable with your cannabis taxes, it’s always a good idea to double check, and potentially contact a reputable cannabis cpa or attorney if you have questions. You can also reach out to your state representatives and let them know how you feel about schedule 280E. Links below: Find Your Representative | house.gov Comments are closed.
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