Marijuana businesses nationwide are facing excessive taxes due to IRS Code Section 280E, which prohibits businesses involved in the trafficking of Schedule 1 controlled substances from deducting ordinary business expenses or claiming tax credits.
Many of these businesses are trying different strategies to work around this rule, but the IRS is strictly enforcing 280E and rejecting many cannabis businesses’ efforts to avoid these tax restrictions.
How a Failed 280E Defense Can Affect Your Business
Perhaps your business has tried to defend its position regarding 280E, and the IRS has denied your claims. In this situation, your business is likely facing assessment of significant tax deficiencies, as well as interest and penalties.
If your cannabis business claims ordinary deductions and the IRS is assessing taxes on your gross income, you may be subject to federal tax liens on property and levies on bank accounts or income. The IRS can also assess penalties for what it considers your failure to pay your business taxes on time.
How to Handle an IRS Collection Risk After a Failed 280E Position
When your cannabis business is facing aggressive IRS collection efforts, you need to act quickly and take the right steps to help your business survive its tax debt. Your options include:
- Once you receive a collection notification from the IRS, you can request a collection due process hearing. Initiating this process pauses collection efforts and gives you a chance to negotiate an agreement or payment installment schedule.
- You can try to negotiate an offer in compromise. This is a settlement agreement where the IRS will accept a lower tax amount based on what your business can reasonably afford to pay.
- You can request a penalty abatement. If you can show legitimate reasons for why you filed your business’s taxes the way you did, the IRS may agree to reduce the penalties it imposed.
- You can request that the IRS place your business on Currently Not Collectible status. If you can show that paying your tax debt will prevent you from paying basic living expenses, the IRS will temporarily pause collection efforts.
- You can ask the IRS to reconsider its audit findings. While this approach doesn’t necessarily pause the collection process, you can request reconsideration if you have new evidence or can show the audit was incorrect.
- You can ask for help from the Taxpayer Advocate Service, an independent organization that offers free help to taxpayers facing economic hardship.
Tax Professionals Can Help
280E brings added complications to tax returns for marijuana businesses. Experienced tax professionals at the Highland Tax Group can help you navigate the nuances of 280E, including IRS collections following a failed 280E defense. Contact us today so we can help your business survive 280E tax collections.