Tax Treatment of Cannabis Partnerships: Pass-Through Entity Selection Strategies to Minimize Tax

Utilizing 199A QBI Deduction to Mitigate the Gross Income Inclusion and Section 280E Deduction Limitations

Note: CLE credit is not offered on this program

A live 110-minute CPE webinar with interactive Q&A


Wednesday, December 18, 2019

1:00pm-2:50pm EST, 10:00am-11:50am PST

Early Registration Discount Deadline, Friday, November 22, 2019

or call 1-800-926-7926

This webinar will provide tax advice to partnerships engaged in the cannabis business in states that have legalized its sale and/or cultivation. The panel will discuss the eligibility of pass-through entities claiming the QBI deduction, detail the rules limiting expense deduction under Section 280E, and describe scenarios where a pass-through is the optimal entity selection from a tax and operations standpoint.

Description

The sale and distribution of cannabis for recreational or medical use have become a significant component of many states' legal commerce, with 33 states and the District of Columbia enacting some form of legalization. Despite state relaxation of marijuana prohibition laws, cannabis businesses are subject to significant tax deduction limits because cannabis remains a Schedule 1 substance under U.S. law.

Cannabis businesses are accounting for and reporting the results of their operations with gross receipts, cost of goods sold (COGS), and other deductions just like other for-profit businesses. However, Section 280E prohibits marijuana businesses from claiming business rent, wages, and other expenses unless directly tied to COGS, resulting in a substantially higher actual tax rate than the 21% maximum corporate rate paid by other corporations on net income.

Tax advisers to partnerships need to understand the unique tax treatment of cannabis businesses in tax and entity planning. A possible avenue to reduce federal income tax on cannabis business profits may be to structure the entity as a partnership eligible for the Section 199A deduction, which is taken at the partner level. Treasury has been silent thus far on whether 280E requires a look-through to disallow QBI deductions passed through to individual partners.

Listen as our panel discusses federal and select tax rules impacting the cannabis industry, recent tax court cases, Section 280E, forfeiture, banking, and other related issues for cannabis businesses.

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Outline

  1. State landscape for legalization
  2. Federal income tax issues specific to cannabis businesses
  3. IRC Section 280E deduction limitations
  4. Possible application of Section 199A QBI deduction claim for pass-through businesses
  5. Entity planning strategies

Benefits

The panel will review these and other key issues:

  • How the Section 280E rules serve to limit deductions for non-COGS business expenses
  • How the Section 199A QBI deduction for pass-through entities may be available to mitigate the tax impact of the 280E deduction limits
  • Scenarios where a partnership entity structure for operating a cannabis business may minimize federal income tax
  • Potential state tax questions
  • Key issues raised in IRS audits and methods to avoid them

Faculty

Kalinski, Jonathan
Jonathan Kalinski

Principal
Hochman Salkin Toscher Perez

Mr. Kalinski specializes in both civil and criminal tax controversies as well as sensitive tax matters including...  |  Read More

Stein, Michel
Michel R. Stein

Principal
Hochman Salkin Toscher Perez

Mr. Stein specializes in tax controversies, as well as tax planning for individuals, businesses and corporations. For...  |  Read More

Toscher, Steven
Steven Toscher

Principal
Hochman Salkin Toscher Perez

Mr. Toscher has been representing clients for more than 35 years before the Internal Revenue Service, the Tax Divisions...  |  Read More

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