In May of 2024, the Department of Justice (DOJ) issued proposed language that would reschedule marijuana from a Schedule I controlled substance to a Schedule III controlled substance, subject to section 280E of the Internal Revenue Code. The American Institute of CPAs submitted a letter to the Department of the Treasury and the Internal Revenue Service (IRS) requesting guidance for cannabis businesses in advance of the impending transition away from engaging in a trade or business that subjects them to section 280E.
The AICPA has provided recommendations as a starting point for issuing guidance to cannabis businesses and tax practitioners, urging that they be implemented as soon as possible in anticipation of the potential rescheduling of marijuana as a controlled substance. These recommendations include:
- Retroactive treatment for expenses previously subject to section 280E – the AICPA recommends that Treasury and the IRS issue guidance providing that cannabis businesses are permitted to take deductions for the full tax year in the year in which marijuana is rescheduled to a Schedule III controlled substance and, therefore, cannabis businesses are no longer subject to 280E for that entire year and future years.
- Clarify issues stemming from prior section 280E disallowance – the AICPA recommends that Treasury and the IRS issue guidance clarifying the tax treatment of issues arising from no longer being subject to section 280E, including accounting year changes, partnership basis and depreciation.
- Uniform tax treatment among cannabis businesses – the AICPA recommends that Treasury and the IRS issue guidance ensuring that upon the rescheduling of marijuana as a Schedule III controlled substance, section 280E apply equally to all cannabis businesses legally operating within their respective states, regardless of whether they sell medical marijuana or recreational marijuana.
- Volunteer disclosure program – the AICPA recommends that Treasury and the IRS offer a voluntary disclosure program for cannabis businesses that would no longer be subject to section 280E as a result of the rescheduling of marijuana.
“Since the beginning of the decriminalization and legalization of marijuana across a growing number of states, cannabis businesses and their CPAs have struggled to walk the tightrope of an industry that is locally legal, but federally illegal,” said Melanie Lauridsen, Vice President of Tax Policy and Advocacy for the AICPA. “It’s imperative that the federal government’s tax administration bodies provide guidance to these profitable businesses and their advisors in advance of the rescheduling of marijuana to help ensure a clear understanding of their federal tax obligations and mitigate non-compliance.”
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Tags: Accounting, Small Business, Taxes
