While cannabis companies are used to regulation and audits, the flood gates may have just crept open a bit more. A recent ruling by the US 10th circuit of appeals confirms the IRS’ authority to audit cannabis companies. Though threat of a cannabis company IRS audit has been increasing, this ruling makes it a bit more ominous. In this blog, we are reviewing the recent rulings that can have an effect on a company’s cannabis IRS audit
Cannabis Company IRS Audits
It’s worth reading about this case, whose legal arguments surround whether the government can access a cannabis company’s state filing information in its efforts to ensure accurate federal tax filings.
Cannabis companies have long fought to legitimize their operations, and federal guidance regarding reporting efforts has been hazy at best. While individual states license and regulate cannabis operations, the federal government has sent mixed messages regarding what costs are deductible and which are not. On one side, the IRS has provided a memo, an often-referenced area of tax guidance, but actual enforcement of how 280E ought to be handled has varied even down to the auditor reviewing companies’ books. Such lack of precedence brings concern and uncertainty surrounding future regulations and cannabis company IRS audits. There are many large cannabis cases currently pending with the IRS, leaving several aspects of operations up to interpretation – for now at least.
One thing is certain: With the confirmation that the IRS can obtain financial records to investigate cannabis companies, the need for robust internal systems to accurately capture, maintain, and report upon financials and operational data is critical.
To learn how Silver Leaf CBC can help cannabis companies with financial operations and reporting, as well as with cannabis company IRS audit preparations, contact us.