§ 280E Sidestepped by § 471(c)?

by Brian S. Whalen, CPA June 10, 2020
Estimated Reading Time: < 1 minute


§ 280E Sidestepped by § 471(c)?

Let’s get straight to the point.
This year, on March 30th, the Treasury Inspector General nudged the IRS to provide guidance on § 471(c)’s application to cannabis businesses; the Treasury Inspector General Memo states:


“Under this new provision, marijuana businesses could argue they are entitled to use a method of accounting that includes all expenses in cost of goods sold to potentially avoid the impact of I.R.C. § 280E. According to IRS Chief Counsel, at least two practitioners have identified this issue and have questioned IRS personnel on how the IRS plans to handle I.R.C. § 471(c) as applied to marijuana industry taxpayers.

These practitioners have identified the potential unintended consequence of I.R.C. § 471(c) that appears to allow small marijuana businesses to include non-cost of goods sold expenses in their cost of goods sold and potentially avoid the application of I.R.C. § 280E. IRS Chief Counsel noted that practitioners assert that the new law may provide small business taxpayers wide latitude to characterize all expenditures as cost of goods sold. The effect of the law is still uncertain.”


The IRS declined to comment on the Inspector General’s inquiry, citing “other priorities” at present, so we can only weigh the potential risks and rewards of adopting a  § 471(c)  strategy.

To learn more about the strategy, its risks, and rewards, as well as whether you qualify to implement it, download our brief sheet by filling out the form below:


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