marijuana Archives - TAX CONTROVERSY 360

Weekly IRS Roundup June 24 – June 28, 2024

by Kevin Spencer, Evan Walters and Sama Kaseer | Jul 2, 2024 | IRS Audits, IRS Guidance, Tax Reform, Tax Refunds

Check out our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of June 24, 2024 – June 28, 2024.

June 24, 2024: The IRS released Internal Revenue Bulletin 2024-26, which includes the following:

Notice 2024-45, which provides the inflation adjustment factors and applicable amounts for the credit for Clean Hydrogen Production Tax Credit under § 45V of the Internal Revenue Code (Code) for calendar years 2023 and 2024.
Notice 2024-46, which provides that payments made by Norfolk Southern to individuals affected by the 2023 train derailment incident in East Palestine, Ohio, are considered “qualified disaster relief payments” under Code § 139, which should be excluded from gross income if they are not otherwise covered by insurance.
Notice 2024-50, which adds polyoxymethylene to the list of “taxable substances” subject to an excise tax under Code § 4672(a). The effective date of this modification for purposes of Code § 4662(e) refund claims is July 1, 2022.
Notice 2024-51, which provides the 2023 reference price under Code § 45K(d)(2)(C), applicable in determining the credit amounts provided under Code § 43 and § 45I and that percentage depletion for oil and natural gas produced from marginal properties and oil credits under Code § 613A.

June 25, 2024: The IRS apologized to hedge fund manager Ken Griffith and other taxpayers affected by the tax data leak perpetrated by former IRS contractor Charles Littlejohn.

June 26, 2024: The IRS highlighted challenges it encountered during the 2024 filing season and objectives for the upcoming fiscal year in a semi-annual report to Congress. Among other issues, the IRS identified delays in issuing refunds to identity theft victims, misleading telephone measures that lead to poor resource allocation decisions, and delays in processing Employee Retention Credit claims as key taxpayer challenges.

June 26, 2024: The IRS announced it will mail time-limited settlement offers in July 2024 to eligible taxpayers who participated in Syndicated Conservation Easements and substantially similar transactions that are under audit. The settlement offer will require substantial concession of income tax benefits and the application of penalties.

June 26, 2024: The IRS, through its Electronic Tax Administration Advisory Committee, released its 2024 annual report, which contains a total of 12 recommendations for Congress and the IRS to help improve tax administration.

June 27, 2024: The IRS extended the deadline to file federal individual and business tax returns and make tax payments for certain individuals and businesses in Mississippi that were affected by severe weather since April 8, 2024. The new deadline is November 1, 2024. The extended deadline is available to taxpayers in any area designated by the Federal Emergency Management Agency (FEMA), including individuals and households that reside or have a business in Hancock, Hinds, Humphreys, Madison, Neshoba and Scott counties.

June 28, 2024: The [...]

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IRC Section 280E Will No Longer Apply if Marijuana Is Rescheduled

by Kevin Spencer and Samuel J. Preston | May 21, 2024 | Tax Refunds

On May 16, 2024, the US Department of Justice submitted a Notice of Proposed Rulemaking (NPRM) to reschedule marijuana from Schedule I to Schedule III within the Controlled Substances Act.

As the NPRM recognizes, this action would have a significant economic impact on a substantial number of businesses – specifically, medical and recreational marijuana dispensaries – because Internal Revenue Code (IRC) Section 280E “bars businesses from claiming tax deductions for otherwise allowable expenses where the business ‘consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act.’” Thus, “[i]f marijuana is ultimately transferred to schedule III, [IRC] section 280E would no longer serve as a statutory bar to claiming deductions for those expenses.” Because IRC Section 280E’s impact has meant marijuana businesses were not able to deduct their ordinary and necessary business expenses when computing their taxable income, the reversal of IRC Section 280E could be a gamer changer for the industry.

Businesses currently impacted by IRC Section 280E are now asking whether they will be able to claim refunds for deductions and other tax benefits that Section 280E previously denied them. In other words, will the rescheduling be treated as retroactive for tax purposes?

Nothing in the NPRM speaks to this question, and the answer may likely be determined at the discretion of the US Department of the Treasury and the Internal Revenue Service (IRS) in anticipated future guidance. If the rescheduling is implemented during a tax year (without a stated effective date), taxpayers may be able to apply the treatment to the entire tax year in which the change was made.

Practice Point: Taxpayers in the marijuana industry should consider whether to file protective refund claims for past tax years before definitive guidance is issued. As we have previously reported here and here, a taxpayer can file a “protective” refund claim that is expressly contingent on a specified future event, like guidance from the Treasury to the effect that the rescheduling of marijuana is retroactive to open tax years prior to the change. The Supreme Court of the United States has endorsed protective refund claims to toll the statute of limitations and thereby protect a taxpayer’s right to claim the refund if a favorable event should occur. But taxpayers should keep in mind that, in the IRS’s view, meritless protective refund claims made without “reasonable cause” can be subject to substantial penalties under IRC Section 6676. Therefore, when determining whether to file a protective refund claim, taxpayers should first consider consulting with a tax advisor on the pros and cons of filing.

IRS Flexes Its Administrative Summons Power in Recent Tax Case

by Kevin Spencer and Macdonald Norman | Apr 22, 2020 | Appellate Courts, Tax Refunds, Trial Courts, Uncategorized

The United States Court of Appeals for the Tenth Circuit’s recent opinion in Standing Akimbo, LLC v. United States, No. 19-1049 (10th Cir. April 7, 2020), reminds us of the Internal Revenue Service’s (IRS) ability to obtain the information it needs to examine taxpayers’ returns using its powerful summons tool.

In May 2017, the IRS began auditing Standing Akimbo, LLC (Standing Akimbo), a Colorado limited liability company operating as a medical-marijuana dispensary. The audit focused on whether Standing Akimbo improperly claimed business deductions that were prohibited under Internal Revenue Code (IRC) section 280E. Generally, IRC section 280E provides that no deduction or credit is allowed for any amount paid or incurred in the carrying of a business if such business trafficks in controlled substances that are prohibited by Federal law. While legal under Colorado law, marijuana is still classified as a controlled substance under Federal law, and specifically the Controlled Substances Act. As a pass-through entity, any adjustments to Standing Akimbo’s returns would affect its owners’ (Taxpayers) individual tax returns.

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