24 Aug Cannabis sellers – have you backed up your files? If not, the IRS is waiting to penalize you
The plights and perils of IRS 280E is only one of the traps that awaits cannabis retailers throughout the United States. The IRS is stepping up audits of any company that “touches the flower” and carefully scrutinizing all of the documents, records and other data files (both hardcopy and electronic). How long does a cannabis retailer have to retain their receipts, invoices, and other accounting data? Right now, forever or until cannabis is removed as a controlled substance. According to the IRS, these records “must be retained so long as the contents thereof may become material in the administration of any internal law.” Your records are obviously part of IRS 280E, so make sure you DUPLICATE them. If you don’t, all of your COGS are out the window, and lets not forget penalties, etc.
Let’s suppose that your point of sale software or accounting software just doesn’t cut it for your operation. You decide to buy a new package, install it and update your records. If the information isn’t compatible for the new system and you need to rekey or re-enter the data, YOU ARE OBLIGATED TO REPORT IT TO THE IRS!!! (See Rev. Proc. 98-25, Section 8.01) Additionally, you must create and provide to the IRS a plan to rebuild the system, no matter how simple it is. “The plan must demonstrate that all of the requirements of this revenue procedure will continue to be met with respect to the affected records.” (See Rev. Proc. 98-25, Section 8.02).
Looking for sympathy from the IRS? Good luck finding it. Let’s give a real life example of what happens if your records are destroyed by something out of your control. In Robbins vs. Commissioner, 42 T.C. Memo 809 (1981) a real estate agent named Robbins lost SOME of his records in a tornado, and also some documents he was carrying in a suitcase on a plane were lost by the airline. The outcome of his audit? The IRS *DISALLOWED* all of his deductions, and assessed a penalty for failure to pay the new tax amount. The court was so severe because the court opined “….he failed to duplicate his lost records”.
My professional advice? Go out and buy a NEAT scanner. They work well, are relatively inexpensive, and may at some point save you hundreds of thousands of dollars. Make sure you have a copy of all records offsite in the event your office is robbed or damaged. Also, always back up your data to an off site cloud. It’s sound business advice, and it may save you some serious headaches if anything happens to the originals.