Article by TG Branfalt Jr, Ganjapreneur
The IRS has opened an “aggressive” round of audits on some of the largest and most successful Colorado cannabis growers and retailers, according to an Inc. report. James Thorburn, a Colorado-based tax attorney who represents cannabis clients, says “it’s now just a matter of time” before the agency audits “pretty much everyone in the industry.”
The audits are focused on the taxable year of 2013 to 2014 and are being conducted on businesses using the 280E tax code — the regulation created for businesses participating in illegal trafficking of Schedule I or Schedule II substances. Under the code, businesses are not allowed to take any deductions besides the costs of goods sold. According to Thorburn, in order for the IRS to impose a 280E penalty they must prove that the taxpayer had been “illegally trafficking in a controlled substance” under state and federal law — so the taxpayer must have been convicted of a federal or state drug crime in order for 280E to apply.
The businesses being audited have neither violated state laws nor been federally charged with any drug crime, but Thorburn said the businesses might be being targeted for “political” or “enforcement” reasons. He said if the IRS implements 280E, “the taxes are so severe that the industry couldn’t withstand the taxes that are imposed.”
According to a Denver cultivator, who wished to remain unnamed in the report, “most of the top 100 marijuana companies in Colorado are being ‘randomly’ audited.” His company is one of them — the IRS claimed he misfiled Form 8300, reserved for cash deposits over $10,000, and under 280E.