The New York State Society of CPAs

This is the first of a three-part series on an introduction to the cross-border tax treatment of U.S. limited liability companies. Please look for the next two parts in the July and August issues.

At the federal level, cannabis businesses that “touch the leaf” are taxed on the sum of revenue less cost of goods sold, according to IRC section 280E. Businesses that do not touch the leaf—meaning those that indirectly benefit from cannabis activity, such as suppliers and landlords—can also claim other deductions. But if there is a loss on your investment or loan, will the loss be deductible? Although the investment might appear rosy right now, storm clouds could one day come to this industry. 

Lender Management, LLC v. Commissioner of Internal Revenue provides family offices with a potential roadmap for obtaining trade or business expense deductions under IRC section 162 in connection with rendering investment management services.

Some companies currently face two concurrent challenges—first, how to accelerate the utilization of otherwise non-deductible capital loss carryovers for tax purposes and second, how to guard against the impact of rising interest rates.