24 Aug The Best Trick in The World During an IRS 280E Audit of Your Cannabis Dispensary or Grow Facility to Save Serious Money
Okay, you’re staring at the IRS agent in front of you who is looking at your last three returns, while your CPA who is sitting next to you is sweating so profusely you’re worried you may drown.
The agent looks like he’s playing tic tac toe on your returns, drawing boxes around numbers, making notes, and obviously taking mental notes of the amount he’s about to tell you that you underpaid your taxes. As he starts adding zeroes to the number he’s arrived at, you feel that crushing pressure take hold of your head, and your accountant realizes his or her bill is going to get paid when Hell freezes over. The agent is disagreeing with your cost of goods sold, you’re inventory methods, and is challenging your IRS 263a computations.
But wait – this fight isn’t over – you have some moves you’re accountant has probably never heard of. Tell the agent “I’d like to have a copy of Form 3115, the Application for Change in Accounting Method”. Any taxpayer (read this as cannabis grower/seller) who has a return filed before January 1, 2015 being audited due to an impermissible UNICAP (uniform capitalization) method has the opportunity to change their inventory method to a corrected one (while you’re sitting there, or even better, ask the agent to let you return with a new inventory computation), and IS GIVEN AUDIT PROTECTION FOR PRIOR YEARS!!!
If the agent is unfamiliar or unwilling to provide you the opportunity, ask them to bring in a copy of Revenue Procedure 2014-16 (which details the accounting/inventory change methods) for their review to show that you have the right to change your inventory methods DURING THE AUDIT. As an added benefit, this Revenue Procedure waives the specific scope limitations defined in Revenue Procedure 2011-14 for audited taxpayers, if the changes are filed on Form 3115.
Sound technical? It is, but it is not beyond the grasp of anyone reading it and doing a little research. This is an almost never used accounting method utilized by cannabis growers or retailers due to their fear of an audit, and possibly angering the agent reviewing the return. Ask for a few days to complete the form, and compare the result with what you are currently being audited for. The chances are tremendously in your favor this will save you some significant money, and it’s all above board.