Like other federal agencies during the coronavirus pandemic, the IRS put much of its routine work on the back burner, including audits, enforcement and collections, according to tax professionals.
But since last summer, the federal tax agency appears to have reemerged from its COVID-19 shell.
As a result, cannabis industry tax experts are warning clients of a new wave of audits targeting marijuana companies and their 2019 returns, which could result in additional tax bills for businesses.
“There was a lot of slowdown in the IRS because of COVID in the IRS,” said Rachel Gillette, a Denver tax attorney with the Holland & Hart firm.
“Now, we’re seeing (IRS audits) all over the country, from East Coast to West Coast, and it’s wherever cannabis is legal.”
Gillette said she’s seen a “significant increase” in audit notification letters being sent to marijuana company clients of hers.
She’s also hearing of others – not only in Colorado but also in California, Florida, Michigan and Massachusetts.
“They issued letters to 50 cannabis companies in Denver alone, which is a lot,” Gillette estimated, adding the total number of targeted companies could be more than 100.
The IRS also appears to be broadening its focus to include forms required for cash transactions of $10,000 or more that marijuana companies must file with the agency.
In response, Gillette and other tax experts said, cannabis companies should get their financial statements in order ASAP – especially because the IRS has become adept at finding tax dollars owed by marijuana businesses.
All over the map
The IRS has been targeting the legal marijuana sector for decades, in large part because of Section 280E of the Internal Revenue Code, which bars companies that traffic in controlled substances from claiming standard tax deductions.
Section 280E, in effect, creates a much higher federal tax rate for state-legal marijuana companies than their mainstream counterparts.
Since 2010, the IRS has created at least five special “compliance initiative projects,” which were a series of targeted audits involving cannabis businesses.
Those audits turned up tens of millions in unpaid taxes, which has led experts such as Gillette to believe the agency will continue viewing the industry as a cash cow until Congress acts to change 280E.
Other cannabis tax experts echoed Gillette, citing new audits tied to Form 8300, an IRS requirement for any time $10,000 in cash is part of a business transaction.
That’s something that San Francisco Bay Area tax attorney Regina Unegovsky, of Regal Tax & Law Group, said she saw begin last summer among Northern California marijuana companies.
...
Excerpt only …
READ MORE BELOW
By John Schroyer, Chief Correspondent
March 25, 2022 - Updated March 25, 2022
Photo Credit:
Source : MJBizDaily
Link to original : IRS ramps up marijuana business audits after COVID-19 lull, sources say
