
Making Sense of Internal Revenue Code Section 280E – Part II
Today, we’re picking up right where we left off last week, shedding more light on Section 280E by examining some of the noteworthy cases (and one memo) that have come to define it.
IRS Chief Counsel Advice Memorandum
In 2015, the IRS Office of Chief Counsel issued guidance on the application of Section 280E in the form of a memorandum. It’s a very technical document, but also very useful in understanding the statute, walking through the distinction between gross receipts and gross income (primarily, COGS) and discussing what constitutes COGS for purposes of Section 280E. The key takeaway from the Chief Counsel Advice Memorandum is that COGS should be determined under the Section 471 inventory rules, and that the Section 263A UNICAP rules have limited bearing, as they require capitalization of otherwise deductible expenses. Effectively, a cannabis business can’t use Section 263A to convert business expenses disallowed under Section 280E into COGS.
Alterman
Finally, on to some new case law. Alterman doesn’t offer any new issues to contend with. It is, in many ways, similar to Olive, but with somewhat more compelling facts. Alterman sold cannabis products, and in order to meet Colorado licensing requirements, also had … Keep reading