Tax lawyers and risk specialists are sounding the alarm on a potentially risky move by some cannabis businesses. The decision to challenge the IRS on the controversial 280E tax code could lead to a lengthy and expensive legal battle, with the potential for millions of dollars in fines on top of existing tax obligations.
But for some, the allure of potentially avoiding hefty taxes is too tempting to resist. However, experts warn that this choice could have dire consequences.
In the words of San Francisco-based tax attorney Henry Wykowski, “If something sounds too good to be true, it usually is.” Wykowski, who has represented several high-profile 280E-related cases before federal tax courts, believes that this more aggressive strategy is reckless and will ultimately backfire on those who pursue it.
The 280E tax code, which was originally intended to prevent drug traffickers from deducting business expenses, has been a major burden for cannabis businesses. Under this code, cannabis companies are unable to deduct normal business expenses, resulting in significantly higher tax bills.
Some businesses have attempted to challenge the IRS on this code, arguing that it is unfair and unconstitutional. However, experts caution that this approach is not only risky but also unlikely to succeed.
In addition to the potential for costly fines, businesses could also face significant legal fees and a prolonged legal battle. This could ultimately harm their bottom line and potentially even put them out of business.
While the idea of avoiding taxes may be appealing, it is important for businesses to carefully consider the potential consequences before taking such a bold and potentially detrimental step. As Wykowski aptly puts it, “We believe this more aggressive strategy is reckless and will ultimately backfire on those who are pursuing it.”
