There’s Always Certainty in Taxes: IRS Issues Tax Guidance for the Marijuana Industry

During these unpredictable times, there is certainty in taxes. This month the Internal Revenue Service (“IRS”) posted a dedicated marijuana-industry specific webpage providing general tax guidance and FAQs for the predominantly cash-based industry.  The guidance does not signify a change to the existing law but rather reminds marijuana business owners of their responsibility to pay federal taxes.

This IRS guidance is on the heels of a report from earlier this year by the Treasurer Inspector General for Tax Administration (“TIGTA”), aptly titled “The Growth of the Marijuana Industry Warrants Tax Compliance Efforts and Additional Guidance.” In the report, TIGTA recommended that the IRS develop educational guidance to assist marijuana businesses in understanding their tax obligations.

In the recent tax guidance, the IRS confirms that marijuana businesses are subject to the limitations of Section 280E of the Internal Revenue Code. Section 280E explicitly disallows tax deductions or credits for businesses that traffic a Schedule 1 or controlled substance. Although marijuana may be state-legal, on the federal level it is still considered a controlled substance classified as a Schedule 1.  Section 280E greatly impacts the profitability of marijuana businesses, because they are not able to make the same tax deductions or … Keep reading

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