September 15, 2020

The IRS has updated its website providing general guidance for taxpayers in the cannabis industry. [LINK:] The guidance does not announce any changes in law or enforcement but rather serves as a reminder of important limitations and obligations of cannabis companies:

  • Cannabis-related income is fully taxable, even if the business operations are illegal under federal or state law.
  • At this time cannabis businesses cannot claim tax deductions for most business expenses, though expenses properly allocable to cost of goods sold can reduce income from product sales.
  • Cannabis businesses have the same tax payment and deposit obligations as any other taxpayers. The IRS acknowledged that not all cannabis businesses have access to banks and noted that some taxpayer service centers can accept cash payments. It did not provide any further guidance regarding the technical requirement that certain taxes be electronically remitted.
  • Cannabis businesses that accept large cash payments (over $10,000 in a single transaction or series of related transactions) have special know your customer (KYC) and reporting requirements.

The IRS guidance is consistent with the guidance we have provided to our clients, and sadly does not offer any relief from the compliance challenges faced by cannabis businesses. Our tax practitioners are experienced in advising cannabis clients on myriad tax-related topics specific to the industry, from transaction structuring to business planning to Internal Revenue Code ยง 280E compliance and beyond. We will continue to monitor IRS and other guidance and report on any new developments.

In the meantime, if you have any questions regarding an issue raised in this list, please contact the author or the attorney at the Firm with whom you are regularly in contact.

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