IRC 471-11 and 471-3
If this you, reach out anytime…….
This is the key section of the IRS code that has to be applied long before 280E occurs.They are hand-in-hand, but without IRC (Internal Revenue Code) 471-11 or 471-3, for a cultivator or dispensary, respectively, 280E may end up with more taxes than if 471 was not applied, ornot applied correctly.
And, before IRC 471, GAAP rules have to be applied.Yes, there are many other precedents, if you will, that have to be followed to maximize deductions.
IRC 471 represents how one must account for transactions in theirbusiness when you have inventory.
Inventory is the plant that has grown for one day up to the product sitting on the dispensary shelves.
When it comes to implementing IRC 471, the key take-away is that this is not a black and white accounting rule.Many opaque understandings and implementations take place.
As stated earlier, most are not doing the accounting properly.And, most everyone I speak with, being a cannabis CEO, suspect their financials are being done incorrectly or not maximizing deductions.
They turn with those misunderstandings to accounting and tax professionals to perpetuate the idea that you can just create your financial cost accounting, income statement, and balance sheet preparation only once per year. The author’s opinion is that no great business does a yearly financial package.
The key takeaway is that IRC 471 must be applied perpetually, allocating costs through one of several cost accounting or allocation techniques. And it must be done throughout the year. That is the basic stance I, and many of my fellow colleagues, take.
As a cannabis CEO you need to understand how IRC 471 is applied in your situation.
You should understand what is not deducted in the IRC 471 and why.
And, know and document what IRC 471 deductions were taken.
Either way, documenting why and why not is going to help you run your business much, much better than ever before.
The reason is two-fold.First, you will now know what costs to manage even more tightly.Second, you will not be surprised, as much, when you are going through an audit to find out where the results are coming from.