Medical Marijuana Tax Law
The issues surrounding the taxation of medical marijuana businesses are far too complex for most CPAs serving the industry. As if marijuana entrepreneurs weren't burdened enough by the tough regulatory environment and the lack of banking options, the lack of competent professionals in the accounting industry serving this niche clientele has forced many marijuana business owners to pay effective tax rates of anywhere from 40% to 70%.
More importantly, the medical marijuana entrepreneur faces a level of unparalleled IRS scrutiny. The guerilla campaign against marijuana business owners by IRS auditors has forced thousands of dispensaries (including those with a CPA) to close their doors. In fact, even though the IRS audits less than 2% of all U.S. businesses, more than 6% of operational cannabis companies surveyed by Marijuana Business Daily were reportedly audited by the IRS.
It is no secret that Medical Marijuana, while legal in 23 states, is still illegal federally. It is also widely known by those practicing in Canna-business that Section 280E of the IRS Code governs (generally) how taxes are assessed against those trafficking illegal substance(s). The Tax Courts, however, are still churning out marijuana-based tax opinions at an alarming rate, sparking uncertainty and unease among those in the marijuana business.
Don't rely on just a CPA!
Although a typical IRS audit is civil in nature, audits of the marijuana industry can quickly become a criminal matter. This is where having a tax attorney (and not just a CPA) is helpful. For example, Section 7525 of the IRS Code limits the concept of confidential communication between accountants and their client's civil matters. Moreover, the communications, although confidential, are not privileged. The IRS knows this and they and may seek a criminal investigation under the guise of an IRS audit. This means that the CPA can be compelled to testify whereas an attorney cannot.
As a 280E tax specialist, our services include representation of dispensaries, growers, and processors being audited by the IRS or local authorities, representing cannabis businesses in tax court, and counseling start-ups on entity formation and compliance. Get your business ready for the inevitable audit by contacting a tax attorney who specializes in the marijuana industry.