Los Angeles Cannabis Businesses Must be Audit-Ready
If anyone knows how critical it is to keep good records, it’s California cannabis companies. From metric analytics to regulatory compliance, the marijuana industry depends on data and documentation to ensure their operations are successful. Routine audits are a part of this.
As our Los Angeles cannabis lawyers know, there are many different types of audits. If you’re proactive, you conduct internal audits – of your policies, your practices, your financial records, your compliance accuracy, etc. There are external audits, which might be requested by the board, investors, etc. for a lot of the same reasons as an internal audit, except with a fresh set of eyes from the outside. And then there’s an IRS audit or compliance audit.
Three years ago, the Department of the Treasury’s Inspector General for Tax Administration indicated that the IRS intended to ramp up its audit of cannabis businesses nationally. That report flatly stated the IRS did not believe most marijuana industry companies were correctly applying IRC 28E, and thus might owe millions in taxes. (This was based on 2016 tax filings.)
Of the subsequent IRS audits that took place in three states (California, Washington, and Colorado), roughly 60 percent of cannabis companies had to adjust their tax returns – which totaled nearly $50 million in unpaid taxes just for 2016.
This year, the IRS has better staffing than in recent years – plus the ability to conduct most audits virtually. Owners of plant touching businesses need to be especially primed and ready for this. Continue reading