In case you missed it, last week the IRS released some basic guidance for the cannabis industry, “unbanked taxpayers” and 280E. The 280E “guidance” generally refers back to their 2015 Memorandum, see (Chief Counsel Advice 201504011 released 1/23/2015) wherein the IRS advised section 280E-affected taxpayers must calculate their cost of goods sold pursuant to Internal Revenue Code section 471 and the associated Treasury Regulations.
This guidance is the first of such kind we have seen for the cannabis industry from the IRS since 2015. In addition to a singular FAQ on 280E, it includes some basic “Marijuana Industry FAQs” covering a cannabis business’s tax obligations, payment plans, penalty assessments, and how to make cash payments if you are an “unbanked taxpayer.”
It is high time we have some more assistance for those taxpayers needing to pay taxes in cash, as it was back in 2015 that my client and I settled the Allgreens vs. Commissioner case (see here ) and the Internal Revenue Manual was modified to allow for penalty abatements for unbanked taxpayers (see 20.1.4.26.1.1 (07-17-2015) https://www.irs.gov/irm/part20/irm_20-001-004r#idm140629082271952 . The new guidance implies unbanked or cash payors wishing to pay taxes in cash can set up appointments in advance, go to a secure location, and more efficiently than previously, they can safely make large tax payments in cash. However, the guidance suggests appointments will need a 30-60 day advance notice.
What remains hazy, is if appointments are 30 to 60 days out, how do taxpayers ensure their payments are not late? If a cannabis business taxpayer is a weekly or bi-weekly 941 (employment tax) depositor, how can they be in compliance every week or two in their tax deposit requirements when each appointment requires a 30-60 day notice? I assume such a taxpayer would require a standing weekly or bi-weekly appointment. And while penalties for late-paying unbanked taxpayers can be abated, will the IRS create a mechanism that ensures a penalty will not automatically apply if the IRS is unable to accommodate such a cash taxpayer? We have requested clarity from the IRS on this and some other issues that our clients have faced in making large cash tax payments over the years, including the IRS’s past unwillingness to provide time and date stamped receipts for cash or money order payments made in person.
When the smoke clears, the hope is the IRS will have improved their service to the cannabis industry. After all, we should not forget “service” is a part of the name, and their stated mission is to “provide America’s taxpayers top quality service by helping them understand and meet their tax responsibilities and by applying the tax law with integrity and fairness to all.” This includes taxpayers in the cannabis industry.
The IRS new guidance can be found here:
If you have questions about your unique cannabis tax situation, please contact us.
By: Rachel K. Gillette*
*The author of this blog is no longer with Greenspoon Marder.
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