26 October 2016
Inc reports that stand out cannabis businesses in Colorado are being carefully monitored and audited by the IRS
Here’s the introduction to the report
When it comes to taxes, state-legalized marijuana companies are still having issues with the federal government, thanks to a tax code created to prevent illegal drug dealers from taking regular business deductions.
Now the IRS has opened a new round of audits on a slew of some of the biggest and most successful cannabis growers and retailers in Colorado, says James Thorburn, a Colorado-based tax attorney who represents many clients in the legal marijuana industry.
“The IRS is being very aggressive towards marijuana businesses. [They’ll be auditing] pretty much everybody in the industry,” he says. “It’s now just a matter of time.”
The new round of audits is for the taxable year of 2013 to 2014. Since marijuana is still illegal under federal law, companies must file taxes under tax code 280E, a regulation created for businesses that partake in illegal trafficking of a Schedule I or Schedule II substance (under the Controlled Substances Act). The code bans deductions besides cost of goods sold, which forces marijuana businesses to pay much higher taxes than most businesses that are allowed to take normal business deductions. (The tax code was created in 1982 after convicted drug trafficker Jeffrey Edmondson, a Minneapolis-based man who dealt amphetamines, cocaine, and marijuana, won a lawsuit against the IRS to claim business expenses. After Edmondson won the lawsuit, Congress passed tax code 280E.)
A Section 280E audit is technically civil, Thorburn explains. But in order to impose a 280E penalty, the taxpayer must be proven to have been “illegally trafficking in a controlled substance” prohibited by federal or state law. In other words, the taxpayer must have been investigated and convicted of a federal drug law for 280E to apply. While marijuana is illegal federally, the businesses being audited are operating legally within state law and have not been charged with illegal trafficking.
Click on url for full report: http://www.inc.com/will-yakowicz/irs-aggressively-auditing-marijuana-companies.html
