The Treasury Inspector General for Tax Administration published a March 30 report that shed light on pertinent changes for cannabis businesses. From the jump, no, IRS Code 280E isn’t going anywhere just yet.
“Industry sources projected that the U.S. legal marijuana industry took in nearly $11 billion in sales in 2018 and are expected to rise to $13 billion in 2019 and $25 billion by 2025,” according to the report, which cites the ongoing wave of state legalization measures. This business boom is leading to more interest on the part of the IRS.
The report does lay out two important points that business owners should note in the midst of tax season. For one, cannabis business owners should expect renewed pressure for records and tax audits in the future. The report cites millions of dollars left on the table and a generally high rate of “noncompliance” with 280E among cannabis businesses on the West Coast. In the 2016 tax year, “the IRS could have issued $48.5 million in tax assessments,” according to the report. Extrapolate that across the next five years, and the report warns the IRS that $242.6 million could be escaping the federal government’s grasp. And that’s just Washington, Oregon and California.
The report stresses that other areas aside from those legacy markets out West deserve further scrutiny, as well, now that cannabis markets are maturing in places like Massachusetts and Illinois. The title of the report, after all, is “The Growth of the Marijuana Industry Warrants Increased Tax Compliance Efforts and Additional Guidance.”
“They found that there were a lot of errors with the way tax returns were being prepared in a number of states,” Rachel Gillette, partner and chair of Greenspoon Marder’s Cannabis Law Practice, says. “The long and short of it is that, it appears,