Ahead of the upcoming public hearing on cannabis rescheduling in the US, the American Institute of Certified Public Accountants (AICPA) has called on the Treasury Department to update tax guidelines for cannabis businesses.
In August, news broke that a public hearing, which will further examine the 40,000+ public comments the DEA has received since it officially issued proposals, would take place on December 02.
With a decision on the Biden administration’s efforts to reschedule cannabis approaching rapidly, AICPA has called on the Internal Revenue Service (IRS) and the Treasury to proactively adjust tax guidance for cannabis businesses to ensure a smooth transition if rescheduling occurs.
Currently, under Section 280E of the Internal Revenue Code, businesses handling Schedule I drugs, including cannabis, are prohibited from deducting regular business expenses on their federal taxes.
This limitation means they can only deduct the cost of goods sold, which results in a substantially higher tax burden compared to other industries. If cannabis is rescheduled to Schedule III, however, this restriction would be lifted, allowing cannabis businesses to fully deduct their expenses and gain fairer tax treatment.
In order to prepare businesses for the potential change in policy, AICPA has outlined several recommendations. First, they suggest that cannabis businesses be permitted to deduct all business expenses for the full tax year during which rescheduling occurs, regardless of whether it takes effect mid-year.
Second, AICPA recommends clear guidance on the treatment of previously non-deductible expenses, so companies can smoothly transition without confusion. This would also promote uniform treatment across both recreational and medical cannabis sectors.
Additionally, AICPA calls for a voluntary disclosure program to help businesses correct past misinterpretations of Section 280E without penalties, promoting transparency and smoother compliance with evolving regulations.
