IRS Guidance for Practitioners Working With Marijuana Retailers

The IRS Office of Professional Responsibility plans to release guidance in the first quarter of 2015 for practitioners working with marijuana retailers (whether medical or recreational) in states where the sale of marijuana is legal.

Practitioners are concerned that preparing returns for marijuana growers and retailers could lead to legal trouble, and will be considered unethical or in violation of Circular 230.  These practitioners are pushing the IRS to issue guidance clarifying that a tax professional will not be considered unethical, targeted for audit or considered in violation of Circular 230 rules solely for preparing a return for a marijuana business.

Although several states now allow the cultivation and sale of marijuana, the use, possession, sale, cultivation, and transportation of marijuana is still illegal under federal law.  Marijuana is listed as a Schedule I substance under the Controlled Substances Act of 1970.

Internal Revenue Code section 280E prevents deductions or credits for expenses if a business is involved in the trafficking of controlled substances.  Unless Congress changes its classification of marijuana under the Controlled Substances Act, or changes section 280E, businesses involved in the cultivation or sale of marijuana are only able to deduct for the cost of goods sold.  In the meantime, the IRS can issue a clarification that preparers’ practices will not be affected if they prepare a return for a marijuana business.

The attorneys at the Politte Law Offices can help you understand Circular 230 and Internal Revenue Code section 280E. Contact us today to discuss your tax law options.