Marijuana Businesses And Ethical Issues For Tax Practitioners

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In a post on 1/17/14 titled “Marijuana And The Tax Law“, 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.” I explain the issues CPAs and attorneys face in helping these businesses 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 do 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 that that states 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 that the practitioner reasonably believes is operating 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? (I hope you take a look at the article.)

Annette Nellen, CPA, Esq., is a professor in and director of San Jose State University’s graduate tax program (MST), teaching courses in tax research, accounting methods, property transactions, state taxation, employment tax, ethics, tax policy, tax reform, and high technology tax issues.

Annette is the immediate past chair of the AICPA Individual Taxation Technical Resource Panel and a current member of the Executive Committee of the Tax Section of the California Bar. Annette is a regular contributor to the AICPA Tax Insider and Corporate Taxation Insider e-newsletters. She is the author of BNA Portfolio #533, Amortization of Intangibles.

Annette has testified before the House Ways & Means Committee, Senate Finance Committee, California Assembly Revenue & Taxation Committee, and tax reform commissions and committees on various aspects of federal and state tax reform.

Prior to joining SJSU, Annette was with Ernst & Young and the IRS.

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