MSO Tax Strategy in a §280E World

Structuring, IRC §471(c), and Surviving IRS Scrutiny

Topic Summary

Section 280E of the Internal Revenue Code prohibits cannabis businesses from deducting ordinary business expenses, creating effective tax rates of 60–80% for plant-touching entities. Robert Hoban walks through the legal structuring strategies that reduce 280E exposure — including the IRC §471(c) small business inventory election, management company bifurcation, and ancillary income streams — while addressing the IRS audit trends every multi-state operator should understand.

Session Outline

I. The §280E Landscape (2024–2026)

›Current IRS audit campaign targeting cannabis operators
›Average effective tax rates by operator tier
›Recent Tax Court decisions: implications for the industry

II. IRC §471(c) Safe Harbor — The Most Underused Tool

›Eligibility: the $29M gross receipts threshold
›How to properly elect §471(c) and the GAAP COGS documentation requirement
›What it covers and what it doesn't (deductions still disallowed)
›Filing mechanics: Form 3115 and accounting method changes

III. Structural Strategies for MSOs

›Management company bifurcation: mechanics, limits, and IRS scrutiny
›IP holding company structures
›Non-plant-touching revenue streams: media, consulting, licensing
›Real estate separation via REIT-adjacent structures

IV. State Tax Considerations

›States that conform to §280E vs. states that decouple
›California AB 1288: the decoupling model for other states
›Multi-state apportionment strategy

V. Preparing for and Surviving an IRS Audit

›Document preservation: what the IRS requests in cannabis audits
›Common §280E audit triggers
›Negotiation and settlement strategies
›The rescheduling tax bridge: managing the §280E gap before Schedule III is finalized

VI. Q&A

Suggested Formats

Keynote (45 min)Workshop (2 hr)Panel (60 min)

Best for These Audiences

In-House CounselCannabis OperatorsInvestors

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