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In January, the year-old NJCIA was denied a so-called IRS determination letter regarding its application for tax-exempt status, according to the organization’s president, Hugh O’Beirne. NJCIA’s bad news came after months of back-and-forth between the trade association and the IRS. “We had been moving along, and there were a number of points at which (the IRS was) asking us for further details on our application,” O’Beirne said. “At the eleventh hour, we were informed, ‘Sorry, there’s been a procedural rule change, we’re not giving these types of letters to your type of company.’ “And that happened within a week of when this procedural rule change was announced.” It’s unclear whether other newly formed trade associations have been denied determination letters or tax-exempt status. The IRS did not respond to requests from Marijuana Business Daily seeking comment. The policy change is only a few months old, yet there’s already a good bit of confusion about what it could mean for the cannabis industry and which organizations it may affect. Perhaps the biggest unanswered question is whether the new policy could be used to revoke the tax-exempt status of long-standing MJ advocacy groups or if it applies only to newly formed organizations. There’s no consensus among experts on that point. One obvious target for the IRS in such a situation would be the National Cannabis Industry Association (NCIA), which has been a registered 501(c)6 nonprofit since 2010. If the NCIA didn’t have its nonprofit status, the organization would have had to pony up $210,000 in taxes to the IRS for its 2017 revenue, said Chin, who’s been working with cannabis businesses since 2012. That’s the type of cost that all MJ nonprofits could face under the new policy, he added. Chin based his estimate on NCIA having $2 million in deductible business expenses for the $3 million in revenue the group showed in its 2017 financial statement. He floated the “distinct possibility” the IRS could use its new policy to revoke previously granted tax-exempt statuses to organizations like NCIA.
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