10 Tips to Help Your Marijuana Business Survive an IRS Audit

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By: Michael H. Sampson and Alexander J. Gase

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  1. Understand Applicable Law, including Section 280E of the Internal Revenue Code.
  2. Review Business Expenses to ensure correct characterization of costs that might qualify as “cost of goods sold” under Section 471(a) of the Internal Revenue Code.
  3. Maintain All Tax-Related Documentation, including tax returns, receipts, and correspondence with tax authorities, for an extended period.
  4. Retain And Organize Documentation regarding company owners’ personal living expenses and net worth, as the IRS has identified this information as potentially relevant to determining business sales.
  5. Carefully Follow U.S. Tax Court Cases and other federal court rulings, U.S. Department of Treasury guidance and IRS bulletins and publications.
  6. Utilize IRS Prepaid Credit Cards to pay estimated taxes online.
  7. Cooperate With IRS Agents (if and when required/appropriate), and work with legal counsel to protect all legal rights.
  8. Be Prepared For On-Site Tours of business and initial interviews, which are common methods employed in audits across this industry.
  9. Ensure All Correspondence With The IRS Is In Writing to establish a “paper trail.”
  10. Contact An Experienced Tax Attorney, preferably one with knowledge of the cannabis industry, and/or a qualified accountant, if and when the business has been identified for audit.

Michael H. Sampson is a Partner with Leech Tishman and co-leads the Cannabis Industry Group. He can be reached at msampson@leechtishman.com or 412.261.1600.
Alexander J. Gase is an Associate with Leech Tishman and a member of the Cannabis Industry Group. He can be reached at agase@leechtishman.com or 412.261.1600.

The contents of this graphic were originally published as an article in Marijuana Business Daily on May 19, 2021. These materials are for informational purposes only and are not intended to and do not constitute legal advice or a solicitation for the formation of an attorney-client relationship.