Deep Dive into IRC 471 for Cannabis and CBD/Hemp (Your Ultimate Guide to Compliant Inventory Accounting)

Legally reducing tax liabilities for Cannabis companies hinges upon compliance with one vastly misunderstood tax code: IRC 471.

With five more states legalizing Cannabis in the most recent election, thousands of CEOs and companies will soon attempt to grow successful businesses in 33 states without understanding 471 and its relevance to 280E. Without hiring accountants fully trained in 471, it’s as if the blind are leading the blind as companies become highly vulnerable to crippling penalties (and possible revocation of licenses) should they fail an inevitable IRS audit.

Cannabis companies are not allowed any deductions or credits and courts are penalizing them for messy records. According to 280E, any business associated with the “trafficking” of Schedule 1 substances may not deduct ordinary business expenses (like rent, vehicle expenses, mortgage interest, and much more). This means that the only way Cannabis companies can lower taxable income is by correctly allocating costs to inventory and Cost of Goods Sold (COGS) in compliance with 471.

Hemp is no longer subject to 280E since the passage of the 2018 Farm Bill, which declassified hemp as a Schedule 1 controlled substance, but 471 is still applicable.

The best way you can begin to navigate the intricacies of IRC 471 and keep clients compliant is through proper inventory accounting training. Join us for a 60-minute crash course on 471 inventory and COGS during our in-house webinar, “Deep Dive into IRC 471 for Cannabis and CBD/Hemp (Your Ultimate Guide to Compliant Inventory Accounting).”