IRC Section 471(c) of the TCJA May Mitigate the Curse of 280E for the Cannabis Industry

Published by NCIA

by Calvin Shannon, CPA, CVA, Principal at Bridge West LLC, and Nicholas J. Richards, Esq., Partner at GreenspoonMarder LLP

Today, May 7, 2020 NCIA published an article co-authored by Bridge West Principal Calvin Shannon.  They explain recent findings regarding new tax rules and how they affect the cannabis industry.

“On March 30, 2020, the Treasury Inspector General for Tax Administration issued a report titled “The Growth of the Marijuana Industry Warrants Increased Tax Compliance Efforts and Additional Guidance.” The 53-page report discussed several different topics, including that the IRS should conduct more audits under Section 280E, and this discussion focuses on Section 471(c).

The report states that certain qualifying cannabis taxpayers, who would otherwise be subject to business expenses being disallowed under Section 280E, could potentially account for their inventory under Section 471(c) using a method that would classify most or all of their expenditures as inventoriable costs and avoid Section 280E’s disallowance of such expenditures.  Accordingly, as all the costs would be capitalized into inventory, they would then reduce taxable income as the inventory was sold.  In other words, expenditures previously disallowed under Section 280E would be part of the cost of goods sold and allowed as a reduction of gross receipts. There was no public comment from the IRS in the report on the potential that 471(c) may eliminate 280E.”…

Click below for the full article on the NCIA website….