by Sarah Ratliff
Without a roadmap to IRC 280E readiness, how are businesses supposed to stay compliant? With over 25 years accounting experience, Angela Mays, founder and CEO of The Blunt Accountant, brings her expertise to plant-touching businesses owned by marginalized people—particularly those affected by the failed policies of the War on Drugs. You may have read that there’s a bill in Congress to consider dismantling the crippling tax code that governs the cannabis industry. However, like back-and-forth discussions about legalization on a federal level, for the moment, it’s just that: talk. For another, even if implemented, it will take months, if not years to implement. It’s an automatic switch, so until anything is concrete, plant-touching business owners are still subject to the IRC 280E.
Cannabis Accounting & Consulting Group d/b/a The Blunt Accountant™ (TBA) is a small, innovative firm that specializes in 280E compliance and audit readiness for plant-touching businesses. Cannabis businesses are facing increased tax liability and potential penalties for failing to comply with IRC 280E, and unfortunately, ignorance of the tax code isn’t an excuse in the eyes of the IRS.
TBA’s goal is to help plant-touching businesses minimize their tax liability and/or avoid incurring potential 280E accuracy penalties from a potential IRS audit by implementing 280E-compliant accounting solutions and audit-ready policies and procedures.
Like most accountants—both in and out of the cannabis industry—Angela Mays, founder and CEO of The Blunt Accountant™ is nothing but blunt when it comes to her clients’ books. “The IRC 280E (the tax code that governs our industry) is a labyrinth, and it’s up to me to ensure I cover my clients’ ASSets. Sometimes it can even mean having difficult conversations. I’m not here to sugarcoat things. I’m here to help them succeed and create generational wealth.”
While all industries have to pay taxes, no tax code is as brutal as the IRC 280E. For the plant-touching branch of the cannabis industry, terms like deductions, tax shelters, overseas manufacturing, management company to oversee everything and loopholes aren’t part of the tax return or audit discussion.
It’s not out of the norm for cannabis businesses to be taxed at a rate as high as 80%. And as scary as this sounds, there is some good news, Mays reports. “From the outside looking in, it feels like cannabis business owners are making money ‘hand over fist.’ When we read that x state generated in excess of $200 million in sales tax revenue, we have to assume that if those are the taxes from sales, plant touching businesses must be bringing a lot of money. And while they may very well be grossing a lot of money, it would surprise most people how much of those earnings goes to the IRS when these businesses file their taxes. But there is some light at the end of the tunnel.
“Plant-touching businesses are allowed to allocate some of what is known in accounting as below-the-line expenses into cost of goods sold (COGS).”
A Brief History of The IRC § 280E
Three years after then President Richard Nixon waged war on drugs, in 1971, a Minneapolis-based drug dealer named Jeffrey Edmonson filed his taxes and took all the standard deductions allowable to corporations and individuals. He wrote off wear and tear on his car, a portion of his rent, scales to weigh his product and long-distance calls to promote his product: more than a dozen ounces of cocaine, over a million amphetamine pills and 100 pounds of weed.
Oddly the IRS initially accepted Edmondson’s tax return as is, but realizing the error of their ways, filed a lawsuit against Edmonson. In 1981 Edmonson won his case but the IRS created a tax code so punitive for anyone “trafficking” Schedules 1 and 2 drugs.
More Than Accountants, We’re CannaBusiness Strategists
Given the history and the complex nature of the IRC 280E, you can see why plant-touching businesses shouldn’t hire just any accountant to manage their books. On top of having years of experience navigating the IRC 280E, Mays approaches canna-accounting with a holistic view of the business operations.
“Our solution-driven approach looks at the whole business, not just the accounting operations. We look at your short- and long-term goals, and we work in tandem with each function lead of the organization to create a business that is sustainable, has a growth strategy and that is also audit ready.”
Mays looks at cannabis accounting from two perspectives: the plant-touching business owner and the IRS. “My accounting career spans over 25 years. I’ve also worked many years in Big 4 accounting. This taught me to look at my clients’ books from a wide angle focusing on preparing them for an audit, business process reengineering and fraud risk management.”
Services for New or Existing Businesses
“It’s never too early to be 280E compliant,” says Mays. “Whether you just received your conditional license, or are already open for business, the time to hire an experienced accountant is now. Why? If there’s one thing that’s consistent about the IRS is that they’re inconsistent when they’ll decide to audit a business. Being prepared can be the difference between relief and fear, even an expensive nightmare. I never want my clients to approach an audit with anything but confidence. I have three ways to ensure this.”
CannAccounting in a Box
For new licensees, this proprietary accounting solution includes everything you need to set up a 280E-compliant accounting operation that includes accounting policies and standard operating procedures that focus on the three areas that the IRS will audit. Depending on your business needs this can be a turnkey solution.
280E Compliance Scorecard™
For the existing plant-touching business, The Blunt Accountant offers clients the 280E Compliance Scorecard™. Angela and her team will conduct a detailed analysis of the current state of your cannabis accounting operations. The analysis will be based on the two audit areas that the IRS will audit. Next they’ll create a scorecard with the results of their findings in a personalized 280E Compliance Analysis Report™.
280E Audit Readiness Plan™
The road to IRC 280E audit readiness begins with the Three Ps: Policies, Procedures, and Processes and a personalized 280E Audit Readiness Plan™. The plan focuses on whole business operations and implementing audit-ready policies, procedures, and business processes across the organization that impact the accounting operations.
Nowadays it’s not enough to say you can manage your clients’ books. Having a strategy to start them off on the right foot from day one requires a solid strategy. The CAC Group, d/b/a The Blunt Accountant™, which was awarded the “Top Accounting Firm of 2022” by Financial Services Review, focuses on the entire operations as opposed to just focusing their efforts on accounting alone. They don’t just see themselves as an outsourced function of the business but as a critical team member that adds value to the bottom line.