Close Menu
  • Home
  • News
  • Lifestyle
  • Law
  • Business
  • Education

Subscribe to Updates

Get the latest creative news from FooBar about art, design and business.

What's Hot

Ohio GOP Seeking to Change Voter-Approved Adult-Use Cannabis Law

May 30, 2025

U.S. Court of Appeals Rejects Legal Challenge Claiming Cannabis Prohibition is Unconstitutional

May 29, 2025

Montana Gov. Signs Bill Reserving $12M of Cannabis Tax Revenues for ‘Habitat Legacy Account’

May 28, 2025
Facebook X (Twitter) Instagram
Saturday, May 31
  • Home
  • Contact
  • Privacy Policy
  • Terms & Conditions
Facebook X (Twitter) Instagram LinkedIn VKontakte
Smoke Professional
  • Home
  • News

    More Than 1,000 Arrested in Sweep of U.K. Weed Grows

    July 8, 2023

    Scotland Calls On UK To End ‘Failed’ Drug War With Decriminalization And Harm Reduction Approach

    July 8, 2023

    Germany’s draft law for first phase of cannabis reform

    July 8, 2023

    High Times Cannabis Cup Illinois: People’s Choice Edition 2023 Kicks Off

    July 8, 2023

    Pennsylvania Committee Advances Expansion to State Medical Cannabis Program

    July 7, 2023
  • Lifestyle

    How Watching the News Can Trigger Anxiety and Panic Attacks

    October 28, 2024

    Record High Cannabis and Hallucinogen Use Among Adults

    October 27, 2024

    Weekend Sleep Catch-Up May Lower Heart Disease Risk by 20%

    October 27, 2024

    Energy Drinks Linked to Poor Sleep Quality and Insomnia

    October 26, 2024

    First Psychedelic Church for Magic Mushrooms

    October 26, 2024
  • Law

    Ohio GOP Seeking to Change Voter-Approved Adult-Use Cannabis Law

    May 30, 2025

    Federal Lawmakers Call for Medicaid Fraud Investigation Into Florida Anti-Cannabis Political Group

    May 26, 2025

    Minnesota Ends Criminal Penalties for Bong Water

    May 23, 2025

    Minnesota Bill to Set Up Adult-Use Cannabis Industry Moves to Governor

    May 22, 2025

    Pennsylvania House Passes Cannabis Legalization Bill

    May 8, 2025
  • Business

    U.S. Court of Appeals Rejects Legal Challenge Claiming Cannabis Prohibition is Unconstitutional

    May 29, 2025

    Montana Gov. Signs Bill Reserving $12M of Cannabis Tax Revenues for ‘Habitat Legacy Account’

    May 28, 2025

    Minnesota Tribe Signs Agreements to Open Adult-Use Dispensaries Off Tribal Land

    May 28, 2025

    Washington to Issue New Social Equity Cannabis Licenses This Summer

    May 27, 2025

    DEA Raid Confiscates Over 29,000 Cannabis Plants in New York

    May 26, 2025
  • Education

    CBD and the Aging Population—What Science Says Today

    March 12, 2025

    Wholesale Nootropic Skincare: Boost Your Product Line

    March 10, 2025

    Ideal for Your Business Needs

    March 8, 2025

    A Must-have For Every Smoke Shop

    March 3, 2025

    The Perfect Addition to Your Product Line

    March 1, 2025
Smoke Professional
You are at:Home»Law»Read This Before Selling Your Cannabis Business. Or Filing Your Next Tax Return
Law

Read This Before Selling Your Cannabis Business. Or Filing Your Next Tax Return

adminBy adminSeptember 10, 2023No Comments4 Mins Read
Facebook Twitter Pinterest LinkedIn Tumblr Email
Share
Facebook Twitter LinkedIn Pinterest Email

I’d like to send a shoutout to tax lawyer Nick Richards for an intriguing opinion piece Updated on Friday, September 1 in Marijuana Business Daily. Nick outlines two approaches to potentially help cannabis businesses recoup buckets of cash from Uncle Sam. One approach, which is known to us, may be utilized by cannabis businesses throughout their terms of existence. The second approach, which seems novel, relates to treatment of taxable gains upon sale.

As with most tax strategies specific to cannabis, these approaches center on IRC § 280E, the federal law that disallows deductions and credits for traffickers of Schedule I and II controlled substances. Let’s look at the novel approach first, for cannabis business sellers.

The 280E Asset strategy on sale

Nick’s theory, dubbed the “280E Asset”, posits that deductions disallowed by 280E during the lifecycle of a cannabis business can still be factored into a business’ basis, or the basis of its assets, at sale. This would be highly desirable in many cases, because increased basis means lower taxable gains at sale.

What’s basis? Simply put, it’s the amount of capital investment made by a taxpayer into a business or asset. Nick gives the example of a taxpayer buying an airplane for $1 million and then immediately selling that airplane for $1.5 million. The taxpayer’s basis is $1 million; the taxable gain would be $500,000. If the airplane were a disallowed expense, however – like many cannabis business expenses under 280E – then the entire sale price of $1.5 million would be taxable. Pretty tough.

Enter the 280E Asset theory. This position holds that although 280E prohibits deduction of expenses when incurred by a cannabis businesses, these expenses may be recognized on sale. In support, Nick cites CBS Corp. & Subsidiaries v. U.S (“CBS Corp”), a 2012 tax court decision which held that certain disallowed expenses were recognizable as basis, and could thereby reduce taxable gain on sale. Such a principle would be great for cannabis businesses. Unlike businesses in most other industries, cannabis firms have plenty of disallowed expenses under 280E– especially retailers and other non-grower parties.

Rather than rely on my summary of Nick’s summary of CBS Corp, I suggest you read his short treatment. Then, I suggest you read the case itself; or better still, have a tax lawyer analyze and Shepardize it. Finally, you will need the CPA who prepares your return to sign off.

The 280E Asset strategy appears to be untested– at least in the context of cannabis business windups. I will emphasize again that use of the 280E Asset at sale seems novel, and litigating against the IRS has seldom gone well for cannabis businesses. In fact, I’ve explained that other than Champ v. Commissioner, no cannabis taxpayer has won a §280E case (and there have been a bunch of them).

Dealing with 280E prior to sale

The second approach is for going concerns, and arises out of statutory changes enacted after CBS Corp was decided. Let’s call this one the 471(c) Approach, because it comes into play under § 471(c) of the Tax Cuts and Jobs Act of 2017 (TCJA). In the IRS’s own words, the TCJA “changed deductions, depreciation, expensing, tax credits and other tax items that affect businesses.” On that point, everyone agrees.

Here’s the untested part. As with the 280E Asset strategy, the 471(c) Approach posits that disallowed expenses aren’t irretrievably lost under 471(c) accounting. For that reason, the 471(c) taxpayer may also report its costs of goods sold (COGS), which are not disallowed, according to its own books and records. In this manner, a cannabis business can report otherwise nondeductible expenses as COGS.

Another Marijuana Business Daily article from last month examines the 471(c) Approach in greater depth. For now, I will note that we work with several businesses and CPAs implementing this strategy (perhaps more than I know). I should also caution that I’m unaware of any IRS audits rejecting or allowing the strategy, or of any litigation on point. I’d love to hear from people on this.

Wrapping up on cannabis tax strategy

The good news is that these arcane exercises and tax uncertainties may soon go away. As I explained last week, “marijuana” appears headed for Schedule III. This means that the scourge of 280E would no longer apply, and the cannabis industry would be taxed like other industries at the federal level.

Let’s hope rescheduling goes according to plan, and quickly. Until then, it may be a good idea for cannabis businesses to take a hard look at the strategies set forth above– whether at sale or all along the way.

Source link

Business cannabis Filing read Return selling Tax
Share. Facebook Twitter Pinterest LinkedIn Tumblr Email
Previous ArticleFrom the Archives: SMASHED! (1999)
Next Article California Increasing Incentives to Get Municipalities On Board with Cannabis Licensing
admin
  • Website

Related Posts

Ohio GOP Seeking to Change Voter-Approved Adult-Use Cannabis Law

May 30, 2025

U.S. Court of Appeals Rejects Legal Challenge Claiming Cannabis Prohibition is Unconstitutional

May 29, 2025

Montana Gov. Signs Bill Reserving $12M of Cannabis Tax Revenues for ‘Habitat Legacy Account’

May 28, 2025

Comments are closed.

Our Picks

Ohio GOP Seeking to Change Voter-Approved Adult-Use Cannabis Law

May 30, 2025

U.S. Court of Appeals Rejects Legal Challenge Claiming Cannabis Prohibition is Unconstitutional

May 29, 2025

Montana Gov. Signs Bill Reserving $12M of Cannabis Tax Revenues for ‘Habitat Legacy Account’

May 28, 2025

Minnesota Tribe Signs Agreements to Open Adult-Use Dispensaries Off Tribal Land

May 28, 2025
  • Facebook
  • Twitter
  • Pinterest
  • Instagram
  • YouTube
  • Vimeo
Don't Miss
Law

Ohio GOP Seeking to Change Voter-Approved Adult-Use Cannabis Law

By adminMay 30, 20250

Republican lawmakers in Ohio are seeking to make changes to the 2023 cannabis legalization law approved…

U.S. Court of Appeals Rejects Legal Challenge Claiming Cannabis Prohibition is Unconstitutional

May 29, 2025

Montana Gov. Signs Bill Reserving $12M of Cannabis Tax Revenues for ‘Habitat Legacy Account’

May 28, 2025

Minnesota Tribe Signs Agreements to Open Adult-Use Dispensaries Off Tribal Land

May 28, 2025

Subscribe to Updates

Get the latest creative news from Smoke Unlimited about Weed & CBD vaping.

From Our Partners
About Us
About Us

Get all the current news stories, latest trends and legislation regarding cannabidiol, products, usages and its benefits. So don’t miss out any buzz and stay tuned! We offer a minute to minute updates regarding Marijuana industry.

Facebook X (Twitter) Instagram Pinterest
Our Picks

Ohio GOP Seeking to Change Voter-Approved Adult-Use Cannabis Law

May 30, 2025

U.S. Court of Appeals Rejects Legal Challenge Claiming Cannabis Prohibition is Unconstitutional

May 29, 2025

Montana Gov. Signs Bill Reserving $12M of Cannabis Tax Revenues for ‘Habitat Legacy Account’

May 28, 2025
Sponsors
Copyright © 2025. SmokeProfessional
  • Home
  • Contact
  • Privacy Policy
  • Terms & Conditions

Type above and press Enter to search. Press Esc to cancel.