4 Tips to Protect Your Cannabis Business During an IRS Audit

Did you know the IRS is four times more likely to audit a cannabis business than the mainstream? According to Marijuana Business Daily, the IRS uncovered an average tax deficiency of $282,596 over three audited returns for a cannabis business versus $120,301 per 103 audited returns in the mainstream. 

At a whopping 81% more collectable shortages with 189% less work by simply targeting cannabis companies and the announcement that the agency would be hiring 87,000 new agents, there is a higher likelihood of your cannabis business being at risk for audit. Follow these four tips and be prepared before they come knocking. 

Understand the law. Particularly 280e of the Internal Revenue Code. Confirm correct characterization that may qualify expenses as the cost of goods sold under IRS Code Section  471(a). Follow tax court cases to understand past and new rulings. 

Document everything and maintain organized records. Including all tax returns, receipts,  correspondence, contracts, insurance, and other pertinent documentation, for an extended time frame. Don’t forget to get everything in writing and keep all IRS correspondence.