New Tax Court rulings a mixed bag for marijuana companies

Two new rulings from the U.S. Tax Court this week provided more guidance for cannabis companies dealing with 280E – and while one was hailed as a “Christmas present” to the industry, the other was a bit of a holiday downer.

The first, which is a follow-up ruling regarding Oakland-based Harborside and a decision earlier this month that 280E still applies to all state-legal companies, found that Harborside is not liable for any tax penalties because it acted in good faith while trying to pay its federal taxes in years past.

The decision, issued Dec. 20, is likely to save the company “millions,” said the firm’s attorney, Henry Wykowski.

“It’s a great Christmas present for Harborside and for the industry,” Wykowski said.

“The importance of this to the people in the industry is that the people who paid attention and took 280E into account can rely on this decision to argue that they should not be assessed any penalties if they didn’t get it right, because they did the best they could under the circumstances.”

The second judgment, however, proved a defeat for Los Angeles dispensary owner Donald Duncan, who had tried to get around 280E by hiring a management company to run his cannabis business.

The judge ruled that both the dispensary and the management company – Wellness Management Group – were liable for IRS penalties and for taxes due.

Wykowski, who also represented Duncan in that case, said that using a management company to run day-to-day medical marijuana operations in order to avoid the tax code was a “bad strategy.”

“They took a bad situation and made it worse, they doubled the pain, because now, both entities are subject to 280E,” he said.

The takeaway from Duncan’s situation?

“Anybody that’s now still doing that is on notice that they better change – and change fast,” Wykowski said.

John Schroyer can be reached at [email protected]

One comment on “New Tax Court rulings a mixed bag for marijuana companies
  1. C. Dean Homayouni, Esq, CPA on

    Management companies are dead. MedMen lost over $100 million of the last year and the dragging the industry down. Basically a company that follows the fable “The Emperor has no cloths”. If you want to see a real solution for IRC 280E than go to http://pegasuscii.com/cannabis-software-review and watch Part 4 and Part 5. Part 4 that discusses the IRC 280E Tax Buster POS is the only way to do it. The Tax Court is countering all of the misplaced tax strategies that will have never worked. Playing gimmicks only results is 20% tax penalties and bankrupted companies.

    Reply

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