A Single Audit is required when a non-federal entity expends $750,000 or more in federal awards during its fiscal year. The awards can be direct (straight from the federal government) or indirect (from another non-federal entity). Because it is based on total grant expenses for one year (not per grant), not every company that needs to perform a Single Audit needs one every year. However, increasingly many companies have needed their first Single Audit in recent years, due to increased federal grant funding related to the COVID-19 pandemic.

Following are some key facts about Single Audits, including requirements and changes effective in accordance with the 2024 revision to Government Auditing Standards (also known as the Yellow Book) and the data collection form:

• Non-federal entities, organizations that carry out a federal award as a recipient organization or subrecipient organization, include state and local governments, nonprofit organizations, Native American tribes, and institutions of higher education.

•  In a financial statement audit, the auditor or auditors provides their opinion on whether the financial statements as a whole are presented fairly. The purpose of the Single Audit is to determine if award recipients comply with direct and material compliance requirements for each major program. Federal agencies use Single Audit reports and findings to address problems at the grantee level or to implement changes or improvements to federal programs. It also provides assurance about the recipients’ internal controls over compliance.

• Single audits involve three layers of accounting requirements: Generally Accepted Auditing Standards (GAAS) requirements, Yellow Book requirements, also known as the Generally Accepted Government Auditing Standards (GAGAS), and Uniform Guidance requirements. There cannot be a single audit without the audit also being done under GAGAS. There can be an audit under GAGAS that does not include a single audit.

• The Single Audit Act Amendments of 1996 (Single Audit Act) were enacted to streamline and improve the effectiveness of audits of federal awards expended by states, local governments, and nonprofit entities (referred to as “non-federal entities”), as well as to reduce audit burden. The Single Audit Act requires Single Audits to be conducted by an independent auditor.

• The Single Audit Act gives the Director of the Office of Management and Budget (OMB) the authority to develop government-wide guidelines and policy statements on performing audits to comply with the Act. The most recent OMB regulation issued for this purpose is known as “Uniform Guidance”; it includes uniform cost principles and audit requirements for federal awards to non-federal entities and administrative requirements for all federal grants and cooperative agreements.

• The OMB sets the policy for single audit submissions and their deadlines. The audit package and the data collection form must be submitted to the Federal Audit Clearinghouse (FAC) within the earlier of 30 days after receipt of the auditor’s report(s) or nine months after the end of the audit period, whichever comes first. However, the OMB is waiving the 30-day deadline for 2023 submissions. For 2023 submissions with fiscal periods ending between January 1, 2023, and September 30, 2023, requirement 2 CFR 200.512(1) stating that Single Audits are due to the Federal Audit Clearinghouse 30 days after receipt of the auditor’s report(s), is waived. These audits will be considered on time if they are submitted within nine months after their fiscal period end date.

• As of September 30, 2023, management and governance of the FAC, where federal grant audits are submitted, is transferred from the Department of Commerce’s Census Bureau to the General Services Administration (GSA). As such, the GSA is the new repository for the collection and posting of Single Audit information as of October 1, 2023; it will accept Single Audits with fiscal periods ending 2023 and later. To submit or review a Single Audit, go to the fac.gov homepage and sign in using login.gov. 

• Once you submit a Single Audit package, you cannot make further changes. What you have submitted is what will be available for review via the FAC’s audit search tool.

• On February 1, The Government Accountability Office (GAO) released the Government Auditing Standards 2024 Revision, which replaces Chapter 5 of the 2018 revision with a new Chapter 5 titled, Quality Management, Engagement Quality Reviews, and Peer Review. The 2024 revision also adds application guidance to Chapter 6, Standards for Financial Audits, to provide clarity as to when the concept of reporting key factors in audit matters, previously introduced into the AICPA auditing standards framework, might apply for financial audits of government entities and entities that receive government financial assistance. There are no other changes to the remainder of the Yellow Book.

• Government Auditing Standards 2024 Revision is effective for financial audits, attestation engagements, and reviews of financial statements for periods beginning on or after December 15, 2025, and for performance audits beginning on or after December 15, 2025. A system of quality management for financial reporting that complies with Government Auditing Standards must be designed and implemented by December 15, 2025. An audit organization should complete its evaluation of the system of quality management by December 15, 2026. Early implementation is permitted.

As many donors are tightening their belts, they are looking for ways to differentiate nonprofits. Many rely on rating and information from charity review sites, such as Charity Navigator, Give Well and Guidestar, now known as Candid. 

Candid is about data.

Most of us were familiar with Guidestar because we have used its 990Finder. In 2019, GuideStar merged with Foundation Center to become Candid. Candid itself is a nonprofit and an information service specializing in reporting on U.S. nonprofit organizations. It provides comprehensive data and insights about the social sector: where dollars come from, what dollars go to, and why it all matters.

Candid offers a widely used online profile that can be updated at no cost. When a tax-exempt organization claims its profile and earns a Seal of Transparency, it becomes more visible not just on Candid’s website, but also on more than 200 partner platforms including Facebook, Network for Good, and many donor-advised funds. Candid is not a rating system. Rather, organizations earn Seals of Transparency by contributing information about their mission, staff and leadership, programs, goals, and more.

Seals of Transparency

Candid ratings, or Seals of Transparency, are assigned at four levels: Bronze, Silver, Gold, and Platinum. A Seal of Transparency is a nonprofit’s first step to becoming eligible for Apple Pay for donations. Best practices suggest organizations begin by qualifying for a Bronze Seal and work up through the levels to Platinum. Each level requires the disclosure of additional information. Gold Seal ratings require information from 2022 and 2023; Platinum Seals require at least one submitted metric from 2023. All levels have required information and optional information.

• Bronze: The Bronze Seal provides basic information that allows donors to find your organization. Four pieces of information are required to earn a Bronze Seal:
  • Contact information
  • Donation information
  • Mission statement 
  • Leadership information  

• Silver: The Silver Seal allows organizations to showcase their programs and activities for donors. Three elements are required to obtain a Silver Seal:
  • Program details: name, brief description, and geographic area served  
  • Grant-maker status: Does your organization make grants or donations to others?
  • Branding: logo, tagline, website, and social media account handles 

• Gold: The Gold Seal requires the disclosure of financial information. Two core details are required to secure a Gold Seal:
  • 2022 or 2023 financials: Audited financials are not required; basic financial data can be self-disclosed.
  • Board chair’s name and leadership demographics  

• Platinum: The Platinum Seal allows the organization to showcase itself and its mission-driven goals at a high level. Two key components are required to achieve a Platinum Seal:
  • Strategy and goals: Upload your strategic plan or briefly answer two questions.
  • Metrics: Share at least one impact-based metric from 2023.

Seals expire annually, so information must be updated each year. 

Candid Seals allow organizations to “opt in” and share additional data including:

• Organizational data:
  • Information on the leader, board members, senior staff and staff
  • Equity strategies

• Board leadership practices:
  • Board education and orientation
  • Oversight of the CEO
  • Ethics including conflict-of-interest practices
  • Board makeup and recruitment
  • Formal board assessment measures

• Feedback practices:
  • Collection of constituent feedback

Additional “permanent” documents can also be provided through the Candid Seal process.

What should charities do now?

• Claim your Candid profile if you don’t already have one. If you have one, update your existing profile.

• Review the information necessary for each Seal level and gather current information as needed.

• The information to earn Bronze and Silver Seals is readily available. Earn these to get started and work toward Gold and Platinum Seals.

• Use the many Candid tools available to help gather data. These tools can provide new ways to demonstrate the impact of your organization.

• Finally, obtain the shareable link profile that Candid provides to use in your own development activities.

Want more information? Go to www.Candid.org or www.Guidestar.org.

Why this matters

Organizations build trust and attract funding by being transparent and proving their effectiveness and efficiency. Donors want to be able to gather current information on a nonprofit easily in order to make informed decisions. As opposed to searching through more than 200 platforms, a donor can go to Candid for comprehensive information. 

Watch for the Spring 2024 issue of HBK Nonprofit Solutions newsletter Insights and an article by HBK Principal Sean Kocan, CPA, on Charity Navigator, a platform that assesses and rates the financial health and accountability of charitable organizations.

Join HBK Manufacturing Solutions and special guest Ron Bower, Founder and President of the Brickpath Group and InterviewPath, in a discussion of the interview process. The Interviewing for Results process is a simple, powerful, and proven approach to acquiring the skills required to make the right hiring decisions and avoid costly mistakes, improve your quality of hire, and provide a positive candidate experience.

Watch on demand.

While many industries are struggling to recruit or retain employees, manufacturers’ challenges have been somewhat unique. The gradual retirement of baby boomers is depleting the manufacturing workforce with fewer younger generation workers pursuing trades, including manufacturing labor positions. Over recent years, the challenge has been compounded by workers’ desires for different types of work/life balance, such as flexible work arrangements or remote environments, as well as by other industries offering increasingly competitive pay. Manufacturers have been tasked with finding unique ways to recruit and retain employees, placing a significant focus on offering competitive compensation packages, creating desirable working environments, and providing educational and upskilling opportunities to laborers.

The upskilling need has never been more prevalent. Manufacturers are more rapidly adopting Industry 4.0 technologies that require new skills. Data analytics, computer programming, and maintenance of technology-driven equipment are three skill sets that many manufacturers are adding to their teams.

Earlier this year, Mahoning Valley Manufacturers Coalition (MVMC) announced that the organization, as well as fourteen other training providers in Ohio, were awarded $6.2 million in funds to support Ohioans looking to upskill. MVMC will use these funds for their WorkAdvance program in Youngstown and Warren, Ohio. To learn more about this program, HBK Manufacturing Solutions spoke with Alex Hertzer, Interim Executive Director of MVMC, who shared the following information:

1. What is the WorkAdvance program?
   
   Our local WorkAdvance program is available to workers in Mahoning and Trumbull counties who are interested in a manufacturing career, are motivated to learn new skills, have a high school diploma or GED, and can pass a drug screen. The program offers a paid 3-week training program focused on job readiness, math, manufacturing, and other skills that help workers prepare for a career in manufacturing.
   
   
2. Are there any benefits that WorkAdvance participants receive after they complete the program?
   
   Yes, the WorkAdvance program partners with several manufacturers who typically recruit from the pool of WorkAdvance participants. Manufacturing employer partners are listed on each county’s application website, available here.
   
   Second, WorkAdvance program participants have the opportunity to work with a career coach for twelve months after they complete the program. These coaches are a vital asset to potential job seekers in the manufacturing industry.
   
   
3. Are similar programs available for workers outside of Mahoning and Trumbull County?
   
   Yes, funds for the Individual Microcredential Assistance Program (IMAP) are available to Ohioans statewide seeking eligible credentials. There are a variety of training providers that conduct online or in-person training. Credentials must be short-term, industry-recognized, and technology-focused. A list of training providers with their approved credentials is available at https://workforce.ohio.gov/initiatives/initiatives/imap/for-individuals. MVMC’s WorkAdvance program is just one example of an eligible credential that a worker could earn using the funds awarded, which are from the IMAP program
   
   
4. How do manufacturers benefit from this program?
   
   Manufacturers benefit from this program by having a wider pool of trained candidates for open positions. However, manufacturers do not need to sponsor employees for this program, meaning that employees can pursue this credential on their own. Manufacturers interested in partnering with WorkAdvance can contact MVMC for more information.
   

For more information about the funding available, please contact HBK Manufacturing Solutions at 330-758-8613 or manufacturing@hbkcpa.com or Alex Hertzer at alex@mahoningvalleymfg.com.

Contributing Author:

Alex Hertzer was promoted to Interim Executive Director of MVMC in February 2024 after joining the organization in 2021. Alex most recently served as Senior Project Manager and Assistant Director, where he oversaw membership development and WorkAdvance. He also worked as a plant superintendent before joining the organization.

Rodney C. Smith will serve up to 41 months in prison followed by one year of supervised release for his willful preparation of false tax returns through his tax preparation business. In 2020, the IRS executed a search warrant at Mr. Smith’s business, Xpert Tax Services, in Milwaukee, Wis. At that time, Mr. Smith admitted to IRS agents that he was knowingly violating federal tax laws. (Mr. Smith had been convicted in 2010 of conspiracy to defraud the United States by filing a false tax return.) Mr. Smith defiantly continued to prepare false tax returns for his clients in 2021. Eventually, in October 2023, Mr. Smith pleaded guilty to four counts of aiding, assisting, counseling, or advising the preparation of a false return.

The fraudulent preparation of tax returns included false representations about the client’s dependents, wages, and profits or losses from businesses. The misrepresentations resulted in the taxpayer receiving a refundable earned income tax credit they were not eligible for, hence the receipt of an inflated income tax refund. The estimated loss associated with the preparation scheme was $3.3 million.

Mr. Smith willfully, repeatedly, and fraudulently fabricated income tax returns for the purpose of maximizing his client’s income tax refund. Tax preparers are entrusted to file an accurate income tax return for their clients. Tax preparers are required to be ethical in the preparation of a tax return. When a tax preparer commits such crimes, it is stealing from the government and at the same time betraying the confidence of their clients.

Most preparers are ethical; however, like any other service sector, there are some dishonest preparers who file false and fraudulent tax returns and ultimately defraud their clients. Taxpayers should be cautious when choosing a tax preparer as well as when signing their income tax returns. Understand that as the taxpayer, you are ultimately responsible for all the information reported in your tax return. And remember the adage: “If it sounds too good to be true, it probably is.”

Successful manufacturers must balance countless initiatives and priorities. Customer satisfaction, vendor dependability, production efficiency, employee fulfillment, waste reduction, and profitability are only a few initiatives that manufacturing leaders face. Over the past several years, the alignment of employee skills with company needs has become increasingly important. As manufacturers adopt more advanced technologies, the need for new skill sets from laborers has surfaced. Instead of recruiting new hires, an increasingly challenging endeavor in the current labor market, many manufacturers are choosing to upskill or reskill their current employees.  

What is the difference between upskilling and reskilling? Upskilling improves an employee’s current skillset and knowledge by providing updates or advancements in their knowledge. For instance, a CNC operator may be upskilled by obtaining a CNC certificate. Reskilling allows an employee to learn new skills. This may be critical if a manufacturer is replacing a labor-intensive process with equipment that performs the same job in an automated way. 

For example, someone who manually packaged parts from a production line may be reskilled to learn how to operate and maintain a machine that performs the packaging function.  

In addition to supporting the business’s needs, upskilling and reskilling employees can help a manufacturer maintain their workforce, despite the evolution of the business. Many studies show that investments in employees and their skills can help manufacturers keep employees engaged, thereby reducing turnover.  

Consider the following steps to determine if upskilling or reskilling is right for your manufacturing business:

1. Evaluate the needs of the business. Consider upcoming needs of the business as well, especially those that may require different skill sets.  
   
2. Align the needs of the business with the skills offered by your current employees.  
   
3. Consider gaps between skillsets needed and skillsets demonstrated by your employees.  
   
4. Work with employees to determine where there is interest in upskilling or reskilling to fill these gaps.  
   
5. Consider programs from which employees can obtain upskilling or reskilling.  
   
6. Enroll employees in selected programs and monitor their progress.  

For employers in Ohio, the state’s TechCred program offers eligible Ohio employers reimbursement of up to $2,000 per credential (and $30,000 per funding round) for short-term, industry-recognized, technology-focused credentials or certificates. 

Applications for the current round of funding will be accepted through March 29, 2024, at 3:00 PM.

Employers must have an OH|ID and apply online at https://techcred.ohio.gov/apply. The Ohio Department of Development will score applications and award funding. Considerations for applications include the level of economic distress in the applicant’s region, the balance of awards provided to the region, and the amount that an employer is contributing towards the certificate or certification. 

Employers are encouraged to review eligibility criteria, allowable credentials, training providers, and more information regarding the program by visiting https://techcred.ohio.gov/. 

For more information about Ohio TechCred or to learn about other resources that may help your manufacturing business with upskilling or reskilling employees, contact a member of HBK Manufacturing Solutions at manufacturing@hbkcpa.com or 330-758-8613.

Manufacturers are experiencing significant innovation in their industry.   New technologies that connect machines to the internet, referred to as IIoT or the Industrial Internet of Things, are allowing manufacturers to take advantage of the resulting connectivity and data to improve production efficiencies, minimize downtime, and in some cases, reduce dependency on manual labor.  Manufacturers recognize that they must consider the use of or expansion of these technologies to maintain competitiveness.

The Youngstown Business Incubator (YBI) works with manufacturers in a variety of ways, including supporting the adoption and continued use of additive and advanced manufacturing technologies.  In fact, manufacturers in Northeast Ohio who are introducing IIoT technologies may be eligible for funding when partnering with YBI on these projects.  To learn more about this grant opportunity, HBK Manufacturing Solutions spoke with YBI’s Stephanie Gaffney, VP of Advanced Manufacturing Programs and Daniel Longo, Engineering Program Manager for Advanced Manufacturing who shared the following information:

1. Tell us about the IIoT funding you have received and how it is being used to help manufacturers.
   
   The YBI is operating under a Small Business Administration (SBA) grant to help posture regional manufacturers in adopting or advancing IIoT applications within their shop floor. These adoption or advancement opportunities benefit manufacturers by identifying appropriate solution models and assisting financially with the grant’s reimbursement allotments to physically implement such solutions.
   
   
2. What types of projects are eligible for funding?
   
   Industrial Internet of Things (IIoT) and Data-Driven Manufacturing (DDM) projects may be eligible.  These are vast topics that include an array of subset categories. These categories include but are not limited to:
   
   • Machine monitoring applications
   • Preventative maintenance
   • Connection of data and equipment processes
   • Data integration with Customer Relationship Management (CRM), Enterprise Resource Planning (ERP), or other software programs
   • Smart robotics
   • Sensors
   • Manufacturing efficiency
   • Tracking and tracing
   • Downtime minimization
     
     
3. Is the funding a grant or loan? Is any company match required?
   
   The project was grant-generated and is being offered as a 50% match reimbursement up to a target amount where the available allotment reaches its maximum cap ($12,500).
   
   
4. Are there eligibility criteria (i.e. location, business size, economic status, etc.) that a business must meet?
   
   The only requirement for manufacturers is that their operation location must be located within Northeast Ohio.
   
   
5. Can you recommend any steps for a manufacturer who has not explored IIoT or DDM to take in order to understand if these technologies can help their business?
   
   Anyone seeking IIoT or DDM but unsure if it may be the right fit is encouraged to reach out to the YBI where we can thoroughly investigate their manufacturing operation and help advise accordingly. 

Funding opportunities remain until funds are exhausted or until the end of 2024, whatever comes sooner.  Funding is available for up to six additional projects, so interested manufacturers should act quickly.  For more information about YBI’s IIoT project funding, please contact HBK Manufacturing Solutions at 330-758-8613 or manufacturing@hbkcpa.com.  Interested manufacturers may also contact YBI directly by emailing Daniel Longo at dlongo@ybi.org or Stephanie Gaffney at sgaffney@ybi.org. 

Contributing Authors:

Daniel Longo is the Engineering Program Manager for Advanced Manufacturing at the Youngstown Business Incubator (YBI) in Youngstown, Ohio. His passion for engineering can be accredited towards his time as a Combat Engineer in the United States Marine Corps where he led a vast array of mission critical engineering operations. A native of the Youngstown area, Daniel returned to his hometown and gained experience in industry with General Motors of Lordstown as well as earned his Bachelor of Engineering in Mechanical Engineering at Youngstown State University. Daniel currently leads YBI’s supply chain outreach and development operations, IIoT adoption as well as integration efforts, and supports advanced manufacturing education and workforce development for both civilian and DoD sectors. 

Stephanie Gaffney is the VP of Advanced Manufacturing Programs for YBI and brings over 18 years of engineering program management to this project. She has significant experience with a technology transition grant to integrate additive manufacturing into small to medium manufacturers throughout the state of Ohio. Stephanie has five years of experience managing $20 million in unclassified R&D projects to address urgent joint operational needs of industry, military, academia, and non-profits. She served as program manager for all phases of the Maturation of Additive Manufacturing for Low-Cost Sustainment project funded by America Makes, as well as numerous state and federal funded projects.   

This article was featured in the Naples Daily News on March 3, 2024.

If you are involved in the estate planning world or have engaged in estate planning for yourself and your family, you are likely familiar with the concept of a trust. In general, a trust holds title to property for the benefit of others (the beneficiaries). A foreign trust is a trust that a U.S. court is not able to exercise primary ·supervision over administration over the trust, and is not controlled by one or more U.S. persons. While this may seem simple in theory, determining when a foreign trust exists is not always easy and may be missed in certain situations.

For example, in the United States we do not typically think of retirement or pension plans as trusts because there are special rules related to their taxation, and they often provide a tax-advantaged method of saving for retirement. Similar retirement arrangements established in a foreign countries may not qualify for this same tax-advantaged treatment in the United States, and could be considered foreign trusts. In addition, many foreign countries have unique entities with ownership structures that are similar to a trust, and there­ fore could be classified as a foreign trust in the U.S.

If you have a foreign trust, the U.S. tax reporting requirements can be very complicated, and gen­erally depend on whether a trust is considered a grantor trust (a U.S. person is treated as the own­er of the trust for income tax purposes) or a nongrantor trust (the trust is treated as a separate taxpayer from the grantor and beneficiary).

Where a foreign trust is a grantor trust, the U.S. person who is treated as the grantor/owner must file Form 3520 to report the activity of the trust during the year. The trustee of the trust is required to file Form 3520-A. If the trustee does not file Form 3520-A, the grantor may be able to file a substitute form on the trust’s behalf. The income from the foreign trust must also be reported on the grantor/owner’s individual income tax return each year. The beneficiaries of the foreign grantor trust may also have a Form 3520 filing requirement if they received a distribution from the trust during the year.

In contrast, where a foreign trust is a nongrantor trust, the beneficiary should receive a beneficiary statement from the trustee providing important tax reporting information. If the beneficiary receives distributions during the year, the distributions may pass out income that needs to be reported by the beneficiary on Form 3520 and on their individual income tax return. If the trust has accumulated in­ come in the past, the accumulated income may be distributed to the beneficiary and subject to an ac­ cumulation distribution tax. The beneficiary is also subject to an interest charge using the same rates used for underpayments of tax.

The penalties for failing to file a complete and accurate Form 3520 and 3520-A can be significant, with a minimum penalty of $10,000. Additional penalties may apply if the failure to file is not corrected. It is possible that penalties could be abated by the IRS if the U.S. person can demonstrate reasonable cause for failing to file the required form(s).

If you are a U.S. citizen or resident who has lived and/or worked in a foreign country, has made in­ vestments in a foreign country, or even has family in a foreign country, you should speak with a professional familiar with international tax reporting to make sure you are complying with the U.S. foreign information reporting requirements.

Trulieve Cannabis Corp recently disclosed crucial information regarding amended returns and uncertain tax positions in its latest 8-K filing (dated February 29, 2024). This article aims to dissect the implications of these revelations and the potential use of amended returns for other operators in the cannabis industry.

The following developments were included on the agenda of the 8-K Fourth Quarter and Full Year 2023 Investor Presentation:

• In Q4, Trulieve filed amended federal tax returns for 2019, 2020, and 2021 claiming $143 million of refunds and corresponding amended state returns claiming $31 million of refunds
  
• Amended returns were supported by legal interpretations that challenge the tax liability under Section 280E of the Internal Revenue Code
  • Refund checks of approximately $113 million received to date of $174 million claimed
  • $62 million in Q4:23 and $50 million in Q1:24
  • Received one rejection notice for return-seeking $1.2 million refund
    
• Trulieve continues to make tax payments as a customary U.S. taxpayer without tax payments associated with 280E of the tax code until final resolution is reached
  
• While the challenge is ongoing, taxes are swept into an uncertain tax position
  • Balance sheet includes refund checks received, overpayments made in 2022 and 2023, and estimated payments made in 2023
  • Balance sheet uncertain tax position was $180 million on December 31, 2023, with $152 million related to this tax challenge
  • Cash flow reflects the net of cash taxes paid and refunds received
  • Fourth quarter reported operating cash flow would have been an estimated $32 million without the $62 million refund checks and with $37 million tax inclusive of 280E tax liability
    
• Uncertain Tax Position
  • $180 million at December 31, 2023
    • $28 million unrelated to the challenge of the applicability of 280E to Trulieve
    • $152 million related to the challenge of the applicability of 280E to Trulieve
      • $62 million cash refunds received in Q4:2023
      • $49 million net Q3:2023 280E tax liability accrual
      • $40 million net Q4:2023 280E tax liability accrual
        
• Not included in Uncertain Tax Position at December 31, 2023
  • $50 million cash refunds received in Q1:2024
  • $60 million remaining refund claims from amended returns 2019-2021 (no guarantee of receipt)
  • Incremental 280E tax liability accrual for 2024

Companies operating in the cannabis industry have historically been subject to crippling tax burdens due to the classification of THC products as Schedule I controlled substances. U.S. Code § 280E generally disallows any deduction or credit associated with the trade or business of trafficking in controlled substances (within the meaning of Schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any State.

Section 280E precludes cannabis operators from sourcing tax relief from the ordinary and necessary expenses that come with operating a business, such as costs for personnel, management, general and administrative expenses, interest, security, and rent. Operators have only been capable of deducting costs pertaining directly to the purchase, creation, or development of inventory (Costs of Goods Sold) at the federal level. This lack of tax relief, coupled with the already difficult state of banking and financing for the industry, has led to financial ruin for many operators.

Professionals and operators within the cannabis industry have been questioning both the constitutionality and applicability of section 280E. It is arguable that with the U.S. Department of Health and Human Services (HHS) and many legislators recommending rescheduling in conjunction with the ever-growing number of states and districts legalizing recreational use (including Washington D.C.), the persecution and criminalization of those legally trafficking THC products is no longer a federal priority.

It is important for operators in the industry to consider the statute of limitations on claiming tax refunds related to such a position. Operators will not be eligible for a refund if they do not timely file amended returns during the statutory period. Taxpayers must generally file the return within three years of the due date of the original return, or within two years after the date they paid the tax, whichever is later. It is also essential to keep good financial records of company activity in the event of any audits or examinations.

There are also financial statement implications to claiming refunds on this position. ASC 740 requires disclosure of uncertain tax positions where the company takes or expects to take a tax position that may not be ultimately allowed by the relevant taxing authority. Many corporations must also file Schedule UTP with its tax return if the corporation has recorded a liability for unrecognized U.S. federal income tax benefits in audited financial statements with respect to an uncertain tax position or recognized the tax benefit because the corporation expects to litigate the position.

The acceptance of uncertain tax positions and the walking back of section 280E will lead to significant improvements in cash flow for cannabis operators and a greater sense of economic viability for new companies looking to enter the industry. It is undeniable that the result of Trulieve’s amendment is likely to send echoes of hope for financial health across the industry.

It should be emphasized that this analysis is based on the information available in the 8-K filing and may be subject to change. We encourage any entities interested in making amendment claims to conduct further research and seek professional advice before making major decisions.

If you or your company have questions on amended returns or any matters of cannabis taxation, feel free to reach out to Kurt Seifert at HBK Cannabis Solutions at (330) 758-8613.

The prospect of passing on one’s business and contemplating life after it is often laden with emotions, particularly considering that it marks the culmination of a lifetime of work. Despite the emotional challenges, planning for the inevitability of business ownership transfer is crucial. Consideration of the 5 Ds alone—death, disability, divorce, disagreement, and distress—should prompt business owners to initiate the exit and succession planning process, as they represent the certainties that business ownership will eventually transition. Business owners must be proactive in planning for any of these potential occurrences, as they can happen without warning.

Timing Your Exit

The pivotal question arises: When is the right time to commence exit and succession planning? The answer is, unequivocally, the earlier, the better. Ideally, initiating the process approximately three to five years before the desired exit provides ample time for thorough planning. This duration should be sufficient for business owners to collaborate with professionals, enhancing the business’s appeal to potential buyers, and maximizing the value of the business.

Financial and Personal Exit Plan

While financial planning pre- and post-sale is paramount, often overlooked is the personal plan associated with the emotional aspects of letting go. Business owners tend to focus on the financial shift, considering that 80 percent of their wealth is typically invested in the business (according to the Exit Planning Institute). Addressing questions about retirement, identity redefinition, and life after business is crucial. A holistic exit plan involves a comprehensive understanding of both financial and personal aspects, requiring collaboration with financial advisors, estate planners, and business consultants.

HBK’s Role in Exit Planning

Exit planning is a multifaceted process, and HBK can help the business owner with every step:

• Business Valuation: HBK conducts a thorough assessment, considering assets, liabilities, market conditions, and growth potential to determine a fair sale price.

• Financial Planning: With experienced financial advisors, HBK crafts a robust and individualized post-sale financial plan, evaluating the current financial situation and ensuring a sustainable income stream.

• Succession Planning: Identifying and grooming successors is crucial, and HBK assists in assessing internal talent, providing leadership development guidance, and ensuring a smooth transition. If the business is to be sold to an external third party, HBK can help the owner identify potential buyers.

• Tax Strategies: Navigating complex tax implications is facilitated by HBK’s experts, who devise tax-efficient strategies to minimize liabilities.

• Estate Planning: HBK works with the business owner to create an orderly wealth transfer plan that aligns with goals, mitigates tax exposure, and safeguards the business legacy.

• Transaction Advisory Services: HBK offers transaction advisory services to provide insights and guidance throughout the transaction process, ensuring a seamless and well-informed transition.

Exit and succession planning is not merely a business transaction but a holistic process considering both financial and personal dimensions. By understanding the 5 Ds, proactively addressing an eventual transition, and engaging with HBK’s knowledgeable professionals, a business owner can navigate this intricate journey with confidence, ensuring a successful transition and securing their legacy for generations to come. Ready to secure the future of your business and legacy? Take the first step towards a successful exit and succession plan today. Contact HBK’s experienced professionals to guide you through the process with confidence and ensure a seamless transition for generations to come.