Trulieve Cannabis Corp (TCNNF)

[FUNMAN]

Tax education: The "expense write-off" answer is lengthy. These three articles are not the complete answer.

However by reading them you will surmise that cannabis companies are operating with one hand tied behind their back when it comes to being able to write off a lot of common expenses that ordinary businesses can write off.

Therefore, once the SAFE BANKING Act passes, USA MSO's are going to explode with profits.

You can access the articles at the links just prior to each article, and then start surfing through more of the links in the actual articles themselves.

Or just read the articles here without linking.

https://mjbizdaily.com/us-tax-court-rules-marijuana-deductions-are-not-allowed/

US Tax Court rules cannabis deductions are not allowed
Published October 24, 2019


The U.S. Tax Court again ruled that Section 280E of the Internal Revenue Service tax code is constitutional and cannabis companies aren’t entitled to common business deductions.

The ruling centered on a plea from Northern California Small Business Assistants, which received a tax bill and penalty from the IRS for $1.5 million for the 2012 tax year, Bloomberg reported.
The Tax Court concluded that marijuana remains a Schedule 1 controlled substance, and thus, under current federal law, the IRS is correct in disallowing standard tax breaks for cannabis businesses.

The ruling comes on the heels of multiple MJ industry losses in Tax Court last December and a warning from a former IRS attorney that more 280E audits and related actions are likely on the way for cannabis businesses.

Despite the best efforts of some of the top legal minds in the marijuana industry, 280E remains in effect and likely will until the U.S. Congress acts to change the law.

However, some California cannabis businesses can write off deductions at the state level under a bill signed into law earlier this month by the state’s Democratic governor, Gavin Newsom.

For more on the latest U.S. Tax Court ruling, click here.

https://news.bloombergtax.com/daily-tax-report/medical-marijuana-business-deduction-ban-upheld-by-tax-court

Medical Marijuana Business Deduction Ban Upheld by Tax Court (2)
Oct. 23, 2019, 4:27 PM; Updated: Oct. 23, 2019, 6:26 PM
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California business was billed for $1.5 million by IRS
State laws legalizing marijuana business don’t change tax treatment, court says
A tax code provision blocking marijuana companies from getting federal tax deductions is constitutional, the U.S. Tax Court ruled Oct. 23.

The case arose after the IRS billed Northern California Small Business Assistants Inc.—a California medical marijuana company—for $1.5 million in unpaid taxes and an accuracy-related penalty for the 2012 tax year.

The agency had disallowed the company’s tax deductions under tax code Section 280E, which says that a business that consists of trafficking in a Schedule I or II controlled substance can’t receive any tax deductions.

Many cannabis companies that are legal under state law are facing effective tax rates as high as 70% because the federal government considers them to be trafficking in a Schedule I substance. The companies are nonetheless able to reduce their income subject to tax by an amount equal to their inventory costs.

“Despite efforts by several States to legalize marijuana use to varying degrees, it remains a Schedule I controlled substance within the meaning of the Controlled Substances Act,” Senior Judge Joseph Goeke said.

Arguments
The company argued Section 280E violated the Eighth Amendment’s prohibition on excessive fines by imposing a penalty through a tax on the company’s gross receipts. The Excessive Fines Clause guards against abuses of the government’s right to punish.

But the court held that the section doesn’t violate the constitution because it isn’t a penalty provision.

“Unlike in other contexts where the Supreme Court has found a financial burden to be a penalty, disallowing a deduction from gross income is not a punishment,” Goeke said.

The company also argued that the IRS should apply the section more narrowly even if it were constitutional, so that it blocks business deductions that are ordinary and necessary under tax code Section 162 but not deductions from other tax code sections.

The court resisted this urging.

“Congress could not have been clearer in drafting this section of the Code,” Goeke said.

Dissents
Judge David Gustafson wrote a partial dissent, saying he believed the section unconstitutionally exceeds the power Congress has under the Sixteenth Amendment to impose an income tax.

“I would hold that this wholesale disallowance of all deductions transforms the ostensible income tax into something that is not an income tax at all, but rather a tax on an amount greater than a taxpayer’s ‘income’ within the meaning of the Sixteenth Amendment,” he said.

Judge Elizabeth Copeland agreed with Gustafson’s opinion but also wrote a partial dissent of her own, insisting that Section 280E is a penalty and urging further analysis of whether it violates the Eighth Amendment.

“We agree with the dissent that there are constitutional issues and are evaluating an appeal,” said Matthew Carlson, an associate attorney at Wagner Kirkman Blaine Klomparens & Youmans LLP, the firm representing the company.

Judges Richard Morrison and Albert Lauber wrote separate concurring opinions in the case.

The IRS declined to comment.

The case is Northern California Small Business Assistants Inc. v. Commissioner, T.C., No. 26889-16, 10/23/19.

(Updated with comment from attorney. )
To contact the reporter on this story: Aysha Bagchi in Washington at [e-mail]

To contact the editors responsible for this story: Patrick Ambrosio at [e-mail]; Colleen Murphy at [e-mail]



https://mjbizdaily.com/former-irs-attorney-warns-of-upcoming-tsunami-of-marijuana-related-280e-audits/

Former IRS attorney warns of upcoming ‘tsunami’ of marijuana-related 280E audits
Published October 16, 2019 | By John Schroyer


marijuana taxes

A tax expert who spent six years as an IRS trial lawyer is sounding a new 280E alarm bell that many cannabis businesses might need to answer soon.

Nick Richards, a Denver-based tax attorney who now works in the private sector with a clientele that includes marijuana firms, is calling attention to changes in IRS policy that he believes will lead to a “tsunami” of audits that could cost larger cannabis businesses millions in unpaid taxes and penalties.

And the change in policy could mean probable 280E audits for ancillary management companies, including leasing companies, landlords or others that may profit directly from cannabis sales.


Under Section 280E of the IRS tax code, marijuana businesses are barred from taking federal tax deductions.

Tax Court losses

Richards said he learned of the policy changes directly from IRS staffers he keeps in touch with, and those policies resulted from two specific 2018 U.S. Tax Court cases and the expansion of a marijuana industry-auditing project begun by the IRS in Colorado:

The first court case, an attempt by Oakland, California-based Harborside to argue that 280E shouldn’t apply to state-legal cannabis companies, lost when the Tax Court ruled that 280E applies to any company that traffics in Schedule 1 narcotics, even if those companies are approved by state governments.
The second, which also lost, centered on Los Angeles dispensary Alternative Health Care, which attempted to avoid paying federal taxes under 280E by hiring a management company to run the storefront. And that opened the door for an expanded scope of the types of companies to which 280E applies, Richards said.
Under an IRS program aimed at the state-legal marijuana industry that’s being expanded into states other than Colorado, Richards predicted more cannabis companies will face audits in markets such as California – if they’re not already in progress.
The technical name for the program is a Compliance Initiative Project (CIP), Richards said.

The CIP includes an “audit technique guide,” he said, which he’s been told about by IRS agents and attorneys. The program was aided by Colorado’s seed-to-sale tracking system.

“Now they’ve developed that audit technique guide. … And I’ve been told that now they’re going to California with that new approach,” Richards noted.

Audits could loop in years of missing tax forms required for cash payments of more than $10,000, the penalties for which could easily get into the millions.

“It will be more of a tsunami than a 25-foot wave,” Richards said. “It’s going to be low and slow, but deep.”

All MJ companies at risk

A lack of clarity exists concerning where the IRS will draw the line as to what types of companies aside from licensed plant-touching businesses are subject to 280E under the agency’s new policy, Richards said.

Put together, the Harborside and Alternative Health Care rulings “really expand the scope (of 280E), in a big, big, big way,” he added.

“I’ve said things to IRS counsel like, ‘Is a law firm trafficking now? Can a law firm be subject to 280E? What about a payroll provider?’” Richards said. “Where do they draw the line?”

The answer seems to be case by case.

The IRS declined to comment for this story and would not confirm whether any written guidance or specific policy existed for agents to follow in 280E audits.

But Richards said he’s been told by some in the know that the agency isn’t targeting any company that does business with plant-touching businesses – only ones that get “too close to the crop.”

“What IRS counsel would say to me in that is, ‘You don’t see us coming after law firms, do you?’” Richards said.

“They’re conscious that they need to be a little careful about how far they go, but when they’re pushed with cases that take the position that 280E doesn’t apply at all, the rulings that come out of that make it harder and harder for cannabis companies … to make any profit at all.”

According to Richards, the IRS now considers unlicensed companies that work with plant-touching businesses as subject to 280E if they profited from marijuana sales – including the likes of management companies, landlords, leasing firms, etc., but clarity does not exist yet.

Cash payments also targeted

Upcoming audits also could uncover years of problematic cash payments within the industry, Richards warned.

“California has huge problems in the tax world,” he said. “Operating in the gray market for all those years is a giant problem. It’s not just about 280E and taxes. It’s also about the Bank Secrecy Act. That’s the money-laundering statute.

“That’s the other thing the IRS is ramping up on, and that’s the other thing that’s going to come to California in a big way.”

And if the IRS chooses to play as hard-nosed as possible, Richards said, it could result in huge investigations into past all-cash dealings, because any payment over $10,000 requires the filing of Form 8300 to disclose such a payment to the IRS.

If that paperwork isn’t filed, the agency can fine violators up to $25,000 per missing form.

“The penalty for willfully not filing that form … could easily be millions for a big cannabis cultivator,” Richards added.

Some audits underway

While he predicted the bulk of audits likely won’t come about for another year or two, Richards added he already has two audits underway as a result of newly expanded scope of 280E.

One involves a management company and another is a landlord that rents to a cannabis retailer.

“Both of those companies had kind of traditional sort of too-close-to-their-tenant kind of things – like loans,” Richards said. “The IRS is really showing their teeth.”

In those cases – and likely in many more to come – Richards said the IRS is “asserting that (the companies are) subject to trafficking under the Alternative Health and Harborside decisions, which really puts the thumbscrews on the company, because now you have a governmental body that’s saying, ‘You’re trafficking in a controlled substance, and we’re prepared to prove that,’ and there are all kinds of ramifications that could come from that.”

“It becomes a big tool for the IRS,” he added.

Richards said he heard directly from an IRS agent that “if any of the companies that the agent was involved with auditing had anything to do with cannabis, that they should put Alternative Health Care down” as a reference point in the audit, to bolster the strength of the tax case.

John Schroyer can be reached at [e-mail]