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Sunday, August 3, 2014

Marijuana businesses and ethical issues for tax practitioners

From Department of Justice website.
In a post on 1/12/14, I noted the significant tax dollars that Colorado was to generate from legalizing recreational use of marijuana. I also noted that for tax practitioners who assist these businesses (as well as those selling in other states for medicinal use), there are tax law issues (such as IRC Section 280E) and ethical considerations given that growing, cultivating, distributing and using marijuana is still a federal crime. CPAs and attorneys need to consider the rules of conduct applicable in their state.

I have a 4-page article on this topic in the Tax Talk feature of the Federal Bar's July 2014 The Federal Lawyer. It is entitled, "Ethical Considerations When Your Potential Tax Client is a Marijuana Business." [the FBA link is down, contact me and I'll send you a copy of the article (Annette.nellen@sjsu.edu); I've also got an outline on this topic] I explain the issues CPAs and attorneys face in helping these business and why, as well as some suggestions for steps to take to perhaps minimize the exposure.

This is an area in need of guidance. These businesses and non-profit entities need competent tax assistance to deal with complicated federal income tax rules, as well as sales and excise taxes that can apply at the state and local levels.  An excellent step for states that allow any use of marijuana, is to enact legislation worded something along the lines of the following.

"An attorney or CPA licensed in this state will not face disciplinary action when assisting a marijuana business in this state where the practitioner reasonably believes the business or operator is acting within state law. An attorney will likewise not face any disciplinary action in assisting a marijuana operation in this state to become compliant with the state laws or to review whether the operation is in compliance."

The ABA and AICPA and state bar and CPA associations can help by including similar statements in their rules of conduct.

What do you think? 

And ... There are a variety of issues surrounding changes in state laws to allow for either medicinal or recreational use of marijuana. Recently, someone shared with me an article from a public policy professor at UCLA on issues that might arise with a patchwork of state laws and no federal intervention. See "How to Avoid 'Dumb" Marijuana Legalization." Looks like there are a variety of reasons for a federal dialogue on this topic.

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