H.R. 1 and the Legal Marijuana Industry

In addition to a tax and accounting practice, I own Tax Practice Pro, a continuing education provider.    That organization emphasis tax education for enrolled agents, CPAs and attorneys in the legal cannabis industry.

Since 2014, I advocated that marijuana businesses with IRC §280E exposure consider implementing IRC §263A on a voluntary basis.  Forgive me for stating the obvious, but while 263A represents merely an inconvenient timing difference in most industries, in cannabis IRC §263A takes non-deductible IRC §280E expenses, and potentially turns  them into an eventual  COGS adjustment.  Currently, neither the Internal Revenue Code nor the regulations prohibit this treatment – and why should they?  IRC §263A application generally decreases the current year deduction or ordinary and necessary business expenses.
My review of HR1 Section 3202, as passed, unambiguously prevents this voluntary adoption.    Note that IRC §448(a)(3) referenced is the $5 million or less test.   The emphasis added is mine:
(1) IN GENERAL.—Section §263A is amended by re-designating subsection (i) as subsection (j) and by inserting after subsection (h) the following new subsection:

“(i) Exemption For Certain Small Businesses.—

“(1) IN GENERAL.—In the case of any taxpayer (other than a tax shelter prohibited from using the cash receipts and disbursements method of accounting under section 448(a)(3)) which meets the gross receipts test of section 448(c) for any taxable year, this section shall not apply with respect to such taxpayer for such taxable year.

That’s SHALL NOT APPLY.

 

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