TA X L AWS
How Do The Tax Laws Impact Your
Business Structure And
Your Business Model?
BY: MARC E. SEYBURN
ON NOVEMBER 29, 2018, the Tax Court
released its opinion on PATIENTS MUTUAL
ASSISTANCE COLLECTIVE CORPORATION
d.b.a. HARBORSIDE HEALTH CENTER,
Petitioner v. COMMISSIONER OF INTERNAL
REVENUE, Respondent, 151 T.C. No. 11 (the
“Harborside Case”). As disappointing as it
was that Harborside’s arguments were all
rejected by the Tax Court, the case does
provide both clarity and insight that should
be considered in order to be as efficient as
possible before beginning the operations of
a marijuana business. This level of up-front
planning is necessary, especially in a highly
competitive industry where margins will have
a hand in dictating the future of the persons
participating in the marijuana industry.
One of the holdings within the Harborside
Case was that the Tax Court clarified their
opinion on applying IRC Section §471 and
its corresponding regulations to determine
a marijuana business’s cost of goods sold
rather than applying IRC Section §263A
and its corresponding regulations. This
clarification still doesn’t make a lot of sense
to me, but now it is the controlling authority.
This removes any reasonable basis for a tax
practitioner to prepare a tax return applying
IRC Section §263A and its corresponding
regulations.
The insight provided by the Harborside
Case comes in the Tax Court’s analysis
beginning on page 56: Could it be possible
for a Provisioning Center to be classified
as a “Producer” for purposes of IRC §471? If
classified as a Producer, the indirect costs
identified in Treas. Reg §1.471-3(c) can be
added to the cost of goods sold. Alternatively,
as a Reseller, which is what the Tax Court held
applied to Harborside, only the inventory
price and transportation costs can be added
to the cost of goods sold per §1.471-3(b).
The difference is that a Producer can
classify certain indirect expenses as cost
of goods sold. The Tax Court’s analysis
Marc E. Seyburn
Marc E. Seyburn has been developing his professional skills for over 20 years, which
has allowed him to cultivate his unique talents as a creative thinker in legal, tax
and financial planning. Throughout his career he has gained valuable experience
in all phases of transactional work, utilizing his unique skill set from capital raise
through startup in a wide variety of industries. His primary technical expertise is in
structural planning, partnership taxation, estate planning, jet acquisition structuring,
cash flow modeling, and analyzing and structuring investment opportunities.
In February 2010, Marc opened his current practice with the goal of
taking advantage of up-to-date technology, as well as leveraging a
new business plan that promotes increased efficiencies and flexibility
in its fee arrangements. The sky is the limit for opportunities.
seyburnlawpllc.com
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provides insight into how a properly
structured organization can achieve this
classification. Once achieved, the business
planning becomes critical to driving both the
gross and net profit margins to their desired
levels. This Tax Court guidance will allow
tax professionals to work with operations
to carefully construct the proper business
model to achieve the most efficient planning
to maximize your company’s chances for
success.
Instead of closing the door on tax planning,
the Tax Court decision in Harborside opens
the door for creative and responsible tax
planning that spans throughout the entire
business model, making it critical that
the systems and procedures that drive
compliance include both the legal and
accounting insight of tax professionals.
Tax Help Compliance provides a one-stop
alternative to accomplish all of the above.
This is a highly specialized area that should
be in place prior to beginning operations.