Will the Cannabis Tax Rebellion Succeed?

(This is a contributed guest column. To be considered Mjbizdaily Columnist Guonst, please submit your request here.)

There are approximately 38,000 cannabis businesses in the United States. As of this summer, eleven of the billions have more than $2.3 billion in federal income tax combined.

Based on my personal experience as a tax professional, most small companies are not in a better situation. The burden imposed by section 280e of the tax code crushes everyone in the sector.

But then, rebellion.

Big and Little, an increasing number of cannabis companies are filing tax forms saying they are not obligated to pay all the corporate tax they think they owe.

With the unknown but almost massive number of companies refusing to pay and the significant numbers involved, it’s fair to call this the “cannabis tax revolt.”

But will this resistance succeed? The results of past tax revolts in America offer some clues.

Tax resistance throughout US history

The first tax revolt in the United States came early in our country’s history. In 1791, farmers in Western Pennsylvania refused to pay an excise tax on plucked spirits, intended to raise money to pay off the young revolutionary war debt. President George Washington in 1794 poderal troops in Pennsylvania to suppress the whiskey rebellion, which quickly ended.

It is interesting to note that only two ringleaders were found guilty of the crime and both were pardoned. It is also interesting that the public supported the repression of the government. Meanwhile, Western farmers continued to refuse to pay taxes until 1802.

Two hundred years later, an insurance company owner inspired another tax revolt.

In a series of best-selling books, Irwin Schiff argued against the income tax, introduced by 16^th The 1909 amendment was unconstitutional. Apparently this was more of a rebellion: Schiff was a liberal and so were his many thousands of followers.

He lost several times in court and died in a hospital jail, but it took the IRS a long time to step on this. In 2003, the Internal Revenue Service identified 5,000 refunds to Schiff’s followers who claimed not to have received a combined income of $56 million.

In the 1990s, thousands of taxpayers filed “Black Money Inheritance Tax” returns based on the assessed value of 40 acres and a bounty – believed to have been authorized by the Government to be given to former slaves after the Civil War.

The IRS admitted to mistakenly missing more than $30 million in refunds in 2002 and later went to great lengths to declare the refunds fraudulent.

There have been other major attempts at tax evasion, but they have all ended in the same way: the taxpayers in the wake are lost.

And maybe there will be a cannabis tax revolt.

What would victory look like on the maturity of the cannabis tax?

Unlike previous tax rebels, many cannabis taxpayers have the endgame in mind where they pay, but by settling with the IRS for less than the full amount owed.

They point to a 2022 arborside settlement where the IRS has agreed to accept less than $22 million in cannabis carts – and to accept payments over a 10-year period.

However, Harborside had such a strong debt that it could not pay the full amount and would have to close its doors and throw a number of people out of work if a favorable payment plan was not accepted.

In addition, most observers consider the most important aspect of the harborside settlement: the payment schedule and the amount that will be returned after two years, so if Harborside ever paid a lot of money to the IRS. .

Another strange prospect is the change in the tax code in the tax law, which means that section 280e will not apply to previous years and the tax liability from 280e will be removed.

But the Ministry of Finance has been strongly resisting effective change in the tax law, and there have been only a few important changes.

Taxpayers rely on the law in practice at the time of filing, and that trust interest is one of the foundations of our “voluntary practice” program.

Cannabis companies will have to pay the owner a tax

Another possibility is that some propose a settlement plan.

In previous settlement programs, voluntary taxpayers could pay the tax amount – or sometimes less than the full tax – and not be subject to penalties or interest.

A recent example is a debt settlement program. Under this program, taxpayers who voluntarily disclose debts to voluntary debt service providers are allowed to recover 85% of the debt they receive and are protected from penalties and interest.

But an 85% paid supply would not help the cannabis industry. Many cannabis businesses cannot afford to pay those prices. This is especially true for almost all major cannabis companies.

The truth of the matter is that there is no relevant example of this type of tax evasion – that is, where the full payment of the tax owed can be seen by the industry.

The cannabis tax revolt is one of a kind, and the outcome is still unknown.

James B. Mann worked as an adEpukey was an Assistant Attorney General at the US Department of Justice before becoming a senior business partner at Greenspoon Marder. In response to the lack of professional tax advice for cannabis operators, his practice now centers on the financial planning and auditing of cannabis businesses.