The Internal Revenue Service (“IRS”) last Thursday released updated guidance on a stand-alone web page for the state-legal marijuana industry. The new guidance covers the rules for IRC Section 280E, income reporting, reporting case transactions over $10,000, cash payment options, estimating tax payments, and keeping financial records.
“A key component in promoting the highest degree of voluntary compliance on the part of taxpayers is helping them understand and meet their tax responsibilities while also enforcing the law with integrity and fairness to all,” the web page states.
This update appears to be responsive to a Treasury Department internal watchdog report that was released in April. The department’s inspector general for tax administration had criticized IRS for failing to adequately advise taxpayers in the marijuana industry about compliance with federal tax laws.
In a related FAQ, the IRS goes into further detail about specific issues that are particularly problematic for the marijuana industry, including general tax obligations, payment plans, penalties that can be incurred in an audit, deductions that businesses can and cannot make under IRC Sections 280E and 471 concerning calculation of costs of goods sold, and more detailed obligations concerning cash payments over $10,000.
While the new guidance will presumably provide some consistency to the IRS’s treatment of the industry, we strongly recommend that businesses engage competent and experienced tax advisors and counsel to lower tax risk associated with operating a cannabis business.
Contact Dan Garfield, dgarfield@mcallistergarfield.com, 720-722-0048, if you have questions about this IRS guidance or need assistance with entity structuring entity to help minimize the tax burden the cannabis industry faces.