IRS doesn’t intend on publishing 280E tax guidance for cannabis companies anytime soon

Bethan Rose Jenkins, Cannabis News Writer/Editorial

Cannabis companies impacted by Section 280E of the federal tax code have been informed that the much-anticipated guidance won’t be released just yet. This is according to Internal Revenue Service (IRS) attorney Evan Hewitt, who claims that the agency is pushing for issues and guidance pertaining to coronavirus relief instead.

Hewitt’s words were heard during a web conference hosted by the American Bar Association’s Tax Section. He noted that the federal agency’s efforts are heavily tied to 2017 tax reforms that were previously facilitated by Republicans, before being signed into law by former President Donald Trump.

“Certainly we’re aware of the ever-increasing importance of Section 280E, as time goes on,” Hewitt was quoted as saying during the presentation. The attorney went on to say that the IRS failed to clarify 280E guidance for cannabis companies when the government agency released a list of priorities in November 2020.

According to Hewitt, “other businesses” that don’t touch the cannabis plant A.K.A. “ancillary cannabis businesses” may also be subject to 280E. 

IRS issued new tax-payment guidance for cannabis companies September

Cannabis industry players have been informed that they won’t be enlightened on the subject of 280E guidance just five months after the IRS published a series of guidance documents. Issued in September, the guidance included instructions regarding the way(s) in which U.S. cannabis companies can use large wads of cash to pay tax bills; despite federal restrictions limiting bank account access for businesses in the weed sector.

“A key component in promoting the highest degree of voluntary compliance on the part of taxpayers is helping them understand and meet their tax responsibilities while also enforcing the law with integrity and fairness to all,” reads a statement from the IRS that was published on Twitter. “Businesses that traffic [cannabis] in contravention of federal or state law are subject to the limitations” in IRS code.

Rules outlining how to pay taxes with cash money, as well as a list of frequently asked questions, links to forms and an overview of Section 280E, were featured in the September-issued range of online documents.

It’s likely that the IRS felt pressure to issue this guidance. After all, in April, the government agency fell under fire in a Treasury Inspector General for Tax Administration (TIGTA) report for failing to educate the legal cannabis industry on its federal tax obligations. 

However, the agency seems to have taken a step back as the coronavirus pandemic becomes evermore intense.

An overview of the U.S. Treasury Department report 

The cannabis industry likely owes hundreds of millions of dollars in unpaid taxes, based on the findings of a report written by TIGTA. Those unpaid taxes, say TIGTA officials, fall under Section 280E of the Internal Revenue Code. 

As per the details of 280E, companies that traffic cannabis and other federally illegal drugs are forbidden from filing standard business deductions. Consequently, state-legal cannabis companies are racking up substantial federal tax bills.

“Without a national program to address this high-risk industry, the IRS will be unable to accurately determine the overall noncompliance risk associated with taxpayers within this industry, let alone the accuracy of their reporting compliance with the limitations of 280E,” reads an excerpt from the report.

Conversely, the report also discovered that a Republican tax bill from 2017, named “The Tax Cuts and Jobs Act,” presents a loophole for cannabis companies to dodge 280E taxes. While the loophole offers a comforting prospect for the cannabis industry, litigation will be ongoing until the lucidity of 280E is satisfactory.