420 with CNW — IRS Increases Audits of Cannabis Businesses After Lull Caused by Pandemic

The IRS has increased its audits of cannabis businesses after a long hiatus brought on by the coronavirus pandemic. Tax experts in the marijuana industry expect a new wave of audits to be conducted that target cannabis companies and their 2019 returns to be conducted, which may result in additional tax bills for these companies.

Rachel Gillette, a tax attorney in Denver, states that the pandemic caused the IRS to slow down but now with things picking back up, the federal tax agency is running more audits in different parts of the country, particularly in places where marijuana is legal. Gillette noted that she has observed a considerable increase in notification letters for audits being sent to cannabis companies that are her clients. She added that she’d heard of other companies in the states of Colorado, as well as Massachusetts, Michigan, Florida and California, who had also been issued with audit letters.

The federal tax agency may also be broadening its focus to include forms needed for cash transactions of $10,000 and above, which cannabis companies must file with the agency.

Tax experts recommend that marijuana companies get their financial statements in order as soon as possible, especially since the tax agency is skilled at finding tax dollars owed by cannabis businesses. The federal agency has been targeting the legal cannabis sector for a while now, which many believe is because Section 280E of the Internal Revenue Code prevents companies that traffic in controlled substances from claiming tax deductions. This section also establishes significantly higher federal tax rates for state-legal cannabis firms.

The IRS has, since 2010, established roughly five compliance initiative projects that involved targeted audits on marijuana businesses. These audits brought to light millions in unpaid taxes, with experts noting that until a change is made to Section 280E, the federal tax agency will continue to view the cannabis industry as a cash cow.

Recently, the IRS also began to conduct audits tied to FORM 8300, which is a requirement for any cash filings that are part of a business’s transactions. Tax attorney Regina Unegovsky states that she observed a more than double increase in audits since last summer among cannabis companies in northern California, noting that the IRS begun conducting audits for cash filings, which was a new approach to cannabis businesses.

These changes come after De Lon Harris, the IRS commissioner, pledged last fall that the federal agency would help cannabis companies comply with their tax obligations.

As any licensed company such as American Cannabis Partners will tell you, one of the first things any cannabis company needs to do to avoid problems is meet its tax obligations whether at the federal or state level. Therefore, the audits are likely to catch smaller companies that are still struggling to put appropriate systems in place.

NOTE TO INVESTORS: The latest news and updates relating to American Cannabis Partners are available in the company’s newsroom at https://cnw.fm/ACP

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CNW420 spotlights the latest developments in the rapidly evolving cannabis industry through the release of two informative articles each business day. Our concise, informative content serves as a gateway for investors interested in the legalized cannabis sector and provides updates on how regulatory developments may impact financial markets. Articles are released each business day at 4:20 a.m. and 4:20 p.m. Eastern – our tribute to the time synonymous with cannabis culture. If marijuana and the burgeoning industry surrounding it are on your radar, CNW420 is for you! Check back daily to stay up-to-date on the latest milestones in the fast -changing world of cannabis.

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