280E Consulting

Guidance for navigating complex IRC 280E matters and lessening your tax burden.

Knowledge and insight on how best to operate considering U.S. IRC 280E.

ELLO’s team of tax specialists and advisors help our clients navigate the complex issues involved in operating a cannabis business. One of the most challenging and costly operating concerns is the federal statutory framework for reporting deductible costs under Internal Revenue Code (IRC) 280E. ELLO can help our clients navigate this complexity and minimize their tax burden while remaining compliant with current laws and regulatory obligations.

Taxpayers are required to determine cost of goods sold (“COGS”) by utilizing the applicable inventory-costing regulations under (IRC) §471 as they existed when IRC §280E was enacted.

IRC section IRC §263A increased the types of costs that are includible in inventory. Under IRC §263A both resellers and producers are required to capitalize a portion of their service costs (payroll, legal, personnel functions). The IRS has issued CCH 201504011 taking the position that marijuana resellers and producers are not allowed to apply the provisions of §263A.

Helping cultivators, manufacturers and retailers

We help our clients understand how to segregate lines of business; determine the specific rules for COGS in each line of business; segregate between business lines dealing with controlled substances (cannabis) and those lines not involved with controlled substances; apply §263A to cannabis businesses; evaluate R&D tax credits; and manage these and other complex IRC requirements.

Services Include

Cultivators

A cultivator/producer is permitted to deduct wages, rents and repair expenses attributable to its cultivation/production activities, but is not permitted to deduct wages, rents, or repair expenses attributable to its general business activities or its marketing activities.

Manufacturers

May be able to use the full absorption method of inventory costing, which includes both direct production costs and indirect production costs.

Retailers

Tax solutions for retailers include how to capitalize the invoice price of the cannabis purchased, less trade or other discounts, plus transportation or other necessary charges incurred in acquiring possession of the cannabis.