irs 280e medical marijuana deductions
Marijuana Business News

IRS Advisory Council: Protect Tax Preparers Who Advise Marijuana Businesses

irs 280e medical marijuana deductionsWhen many people think of the marijuana industry and the federal government, they don’t realize that there is more than just marijuana stores involved. There are a lot of facets to the marijuana industry and beyond. There are a lot of non-marijuana businesses that deal directly with the marijuana industry. The best two examples are attorneys and accountants. There has been a lot of debate about whether or not attorneys and accountants that advise marijuana businesses who are in direct violation of federal law are liable for prosecution themselves. The answer for attorneys, according to an advisory council for the IRS. Per Accounting Today:

Tax professionals who give advice to marijuana businesses in the states where marijuana is legal should not have to suffer adverse consequences because the businesses are illegal under federal law, recommends a new report from a key advisory council for the Internal Revenue Service.

The report, from the IRS Advisory Council, or IRSAC, contains a number of recommendations, including the status of the IRS’s efforts to regulate tax preparers.

“Marijuana businesses that are now legal in some states but still illegal under federal law need ethical and competent professional tax advice,” said the report. “Tax professionals who give that advice need assurance that they will not be adversely affected by the fact that the business is illegal under federal law.”

As I saw someone say on Twitter, ‘that is great for accountants, but what about the marijuana industry itself!?’ Federal tax code is very unfriendly to the marijuana industry, which is one of the first things I’d imagine an accountant would tell you. 280e reform is something that everyone should research and support. If the marijuana industry is to truly reach its full potential, we can’t just stop at protecting accountants that advise marijuana businesses, we need to work towards helping the marijuana businesses themselves.

  • wowFAD

    Having read the relevant portions of the report, I understand what the intent of the report was, which was pretty-much only to ease the minds of accountants in Colorado, Washington, Alaska, Oregon, and the 20+ states with medical cannabis laws that their licenses would not be subject to any sort of penalty for representing the cannabis industry. Accountants needed clarification from IRSAC that tax professionals will not be targeted for representing cannabis businesses that are legal at the state level, but not at the federal level.

    It’s worth noting that the report explicitly stresses the concerns raised by the constituent accountants were with IRC §280E, which states:

    “No deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by federal law or the law of any state in which such trade or business is conducted.”

    It’s also worth noting the concerns over IRC §280E would disappear, completely if cannabis were simply reclassified to Schedule III or better. Of course, so many concerns would disappear, and so many good things would follow if cannabis were simply reclassified to Schedule III or better.

    As far as this report is concerned, it wasn’t necessarily insulating accountants from any *pending* legal action by the federal government against cannabis businesses — that was my worry when I read the summary. That does not appear to be the case. This was an official response to concerns raised by constituent accountants in cannabis-friendly states who needed to know their lives wouldn’t be squashed by the IRS for doing business with the burgeoning industry, given IRC §280E. No more, no less, and I respect the definitive nature of this statement from the report’s recommendation:

    “Published guidance should promptly clarify that a tax professional will not be considered unethical, will not be targeted for audit, and will not be in violation of Treasury Circular 230 solely for representing or preparing a return for a business that is illegal under federal law but legal at the state level under state law.”

    There isn’t anything vague or lofty about that. They could have left the door cracked open to act on IRC §280E violations at the discretion of the IRS. It would have been an easy way to undermine the cannabis industry by going after the people they rely upon for financial representation and guidance, the same way the DEA uses money laundering laws to pressure banks into refusing to grant accounts to cannabis businesses, thereby forcing a risky cash-only industry. Thankfully, that is not the case. Thankfully, it appears as though *some* of the relevant federal entities are finally accepting the legal cannabis windfall is inevitable.

    I share the sentiments of the aforementioned tweet, but IRSAC has a *very* limited scope of influence. The only corner of the cannabis industry within their purview are accountants, and thankfully for the cannabis industry, IRSAC made the sensible recommendation to give accountants an unconditional green light. It’s a tiny, esoteric, policy victory that only impacts a relative few, but it’s a victory, nonetheless — and one at the federal level, at that.