What Triggers a Cannabis IRS Audit?

What Triggers a Cannabis IRS Audit?

Common triggers that cause the IRS to audit cannabis dispensaries, including 280E issues, cash discrepancies, payroll mistakes, and underreported income.

What This Page Covers

  • Income mismatches
  • 280E reporting errors
  • Late or missed quarterly payments
  • Cash reporting discrepancies
  • Payroll tax problems

Income That Does Not Match Deposits

If reported revenue does not match bank deposits, the IRS may investigate.

Example:
Your return reports $2M revenue. Bank records show $2.6M in deposits.

Mismatch triggers review.

280E Miscalculations

Improper COGS allocation or aggressive expense classification increases audit risk.

Large swings in taxable income year-to-year also raise flags.

Missed Quarterly Payments

Repeated underpayment penalties can increase scrutiny.

Cash Reporting Gaps

Large unexplained cash variances between POS and deposits increase audit exposure.

Payroll Errors

Unpaid payroll taxes are a major enforcement priority.

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