Earlier this week the U.S. Tax Court issued its long-awaited opinion for the Harborside case, which addresses several issues that impact cannabis tax planning strategies.  Those issues include:

  • Definition of “consists of” as used in section 280E;
  • A Narrow view of CHAMP and when a business engages in two or more trades or businesses;
  • Hints that separate taxpayers may be aggregated as engaging in separate trades or businesses;
  • Holds that section 263A does not apply to a trafficking business subject to section 280E and must rely on section 471 COGS methodologies; and
  • Interprets the meaning of “produce” for purposes of the COGS method found in Reg. 1.471-11.

The opinion does not discuss whether Harborside is liable for accuracy-related penalties under section 6662(a).  Also, the Tax Court did not adopt the IRS position previously asserted in an IRS Chief Counsel Advice memorandum — that taxpayers must use the section 471 methodologies that existed when Congress enacted section 280E.  We previously questioned that IRS position.