Earlier this week the U.S. Tax Court issued its long-awaited opinion for theHarborside case, which addresses several issues that impact cannabis tax planning strategies. Those issues include:
- Definition of “consists of” as used in section 280E;
- A Narrow view of CHAMP and when a business engages in two or more trades or businesses;
- Hints that separate taxpayers may be aggregated as engaging in separate trades or businesses;
- Holds that section 263A does not apply to a trafficking business subject to section 280E and must rely on section 471 COGS methodologies; and
- Interprets the meaning of “produce” for purposes of the COGS method found in Reg. 1.471-11.
The opinion does not discuss whether Harborside is liable for accuracy-related penalties under section 6662(a). Also, the Tax Court did not adopt the IRS position previously asserted in an IRS Chief Counsel Advice memorandum — that taxpayers must use the section 471 methodologies that existed when Congress enacted section 280E. We previously questioned that IRS position.