Tax Court Issues Long-Awaited Harborside Opinion

Tax Court Issues Long-Awaited Harborside Opinion

Authored By: Justin E. Hobson

November 30, 2018

Earlier this week the U.S. Tax Court issued its long-awaited opinion for theHarborside 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.

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