Taxes can be daunting for any business but especially so for cannabis businesses. To help alleviate some of the headaches, the IRS has recently debuted a program called the Cannabis/Marijuana Initiative. The IRS’s new program seeks to create some certainty for those businesses participating in the cannabis industry in states where cannabis is legal. More specifically, the initiative is aimed at helping these businesses understand and comply with Section 280E of the U.S. Tax Code—which, to this point, has been a source of frustration for cannabis operators. As it stands, Section 280E prohibits any business participating in the cannabis industry from taking certain deductions that other, non-cannabis related businesses can deduct. For those involved in the cannabis market, the initiative’s timing is well received as they anticipate end-of-year taxes.
The IRS has dedicated an information page to further assist cannabis businesses with this new initiative. De Lon Harris, Commissioner of the IRS’s Small Business/Self Employed Examination Division, stated, “The goal of this initiative is to implement a strategy to increase voluntary compliance with the tax law while also identifying and addressing non-compliance.” Along with offering more training and job aids to its IRS agents who conduct cannabis business audits, the IRS will also provide more coordination and consistency within its organization when it comes to evaluating cannabis-related businesses. These efforts, it contends, will provide clarity concerning Section 280E compliance. But compliance and enforcement are not the only priorities. The IRS also reportedly intends to collaborate with external stakeholders to educate them on tax obligations included under Section 280E.
Given that the U.S. Tax Code is laden with traps for the unwary—particularly for cannabis businesses— Mr. Harris reminded business owners that “cannabis/marijuana business owners also need to understand that all cash-intensive businesses can be, and are, audited.” By implementing this new program, it appears the IRS is trying to avoid conducting unnecessary audits on cannabis businesses by providing information and resources to assist those businesses in accurately calculating their taxes.
By any measure, it is encouraging to see that the IRS is taking an active approach to clarifying confusion in the U.S. Tax Code—specifically Section 280E—by providing useful resources for cannabis businesses and operators.