Marijuana Business Magazine May-June 2020

Marijuana Business Magazine | May-June 2020 18 Challenges to 280E have given IRS more power, tax attorney says Tax Issues and Slow Congress Burden Cannabis Companies N ick Richards joined Greenspoon Marder, a national law firm based in Denver, in January as a partner specializing in tax law and compliance for cannabis businesses. Richards’ extensive background in what he dubs “tax controversy” issues—he formerly worked both in the private sector and for the IRS—make the cannabis sector a natural fit. Are there any signs the federal tax issues affecting cannabis businesses (i.e., 280E) are getting any clearer or less burdensome? Not really. There are state-level taxes: excise and sales. And you can get compliant with all those, but then there is the 280E problem. You can fumble along for a few years, but it will eventually add up if you are not compli- ant. The IRS can impose tax liens and garnish money. There is very limited progress at the federal level generally. Nobody is really willing to go out on a limb and do anything for the industry; we are still stuck. The “reefer madness”mentality is alive and well in the U.S. Congress. Maybe there could be an executive order (preelection), but this is limited, and (President) Trump shows little sign of doing that. It is really a congressional issue, and we know what pace that works at. With this in mind, how can businesses realistically fight the 280E battle? We are looking at an Eighth Amendment defense, one essentially involving excessive fines and penalties. I have had a case of a cannabis business where income was $300,000, but there was a tax liability of $500,000—and that is not unusual. The problem is, we have been lulled into a fake belief that 280E is unconstitutional. The cases that have been tried have really hurt the industry, and the IRS has more power as a result. We haven’t had a case that really dives into the weeds and so, with every case, it gets harder and harder. However, there is a difference in challenging 280E itself and challenging the IRS’ interpretation of 280E (that it can cause more than a 100% tax) and the IRS’ determination to impose penalties for failure to pay the 280E tax. Essentially, the 16th Amendment gives authority to tax “income,” so a tax of more than 100% is a tax on something other than income. A penalty for failure to pay “phantom income” is therefore based on something other than income and, as such, is excessive under the Eighth Amendment because they are applying an income-tax penalty on something other than income. What are some of the biggest errors you see cannabis businesses making in terms of compliance? Perhaps the most important thing is to set your busi- ness up in the most tax efficient and compliant way in MoneyMatters | Nick Thomas Nick Richards