StateHouse Holdings Reaches Agreement With IRS To Resolve Legacy Federal Tax Obligations

StateHouse Holdings Reaches Agreement With IRS To Resolve Legacy Federal Tax Obligations

StateHouse Holdings Inc. STHZF STHZ has reached a partial payment installment agreement with the Internal Revenue Service related to the federal tax returns of its wholly-owned subsidiary Patients Mutual Assistance Collective Corporation ("PMACC") for the 2007 to 2012 fiscal years and the 2020 fiscal year.

At issue were federal taxes owed of approximately $22.1 million. Under the agreement, StateHouse is resolving this liability through the payment of approximately $5.8 million, to be made through $50,000 per-month payments over an expected period of 116 months, beginning in August 2022. The monthly payment amount is subject to IRS review every two years. With each review, the payments may adjust up or down depending on PMACC's ability to pay at that time. The company does not anticipate that these biennial reviews will result in a material increase to the payment plan.

The company has maintained a provision on its balance sheet related to the taxes owed. This provision was approximately $21.6 million as at March 31, 2022. Given that the provision is significantly higher than the anticipated repayments under the agreement, the company expects to record a positive non-cash accounting adjustment of approximately $15.8 million to reverse previous accruals in its financial results relating to the provision. It is anticipated that the adjustment will be reflected in the company's financial results for the second quarter ended June 30, 2022.

In addition, the agreement allows the company to recategorize the majority of the related liability as a non-current liability, materially reducing the short-term obligations on its balance sheet.

"This is a landmark agreement for our company," stated Ed Schmults, StateHouse CEO. "By resolving this longstanding 280E obligation, and more recent federal tax obligations, in a satisfactory manner, StateHouse has demonstrated its leadership in the U.S. cannabis sector. This result provides significant clarity for investors on an issue of critical importance, and puts StateHouse in a much stronger competitive position. It is an important step on our path to building a flagship California cannabis company."

The agreement primarily relates to PMACC's allocation of certain expenses to cost of goods sold in certain of its corporate tax returns. PMACC, a wholly owned subsidiary of Harborside Inc. prior to Harborside's name change to StateHouse, was among the first cannabis companies to challenge the federal tax rule against such allocations and the historic litigation was closely followed by the industry in the hope that the U.S. Tax Court would find in favor of the company and the resolution would pave the way for future tax relief for state licensed operators. On November 29, 2018, the Court disallowed these allocations, holding that they were instead deductions barred by the IRS 280E tax code.

Photo: Benzinga; Sources: courtesy of Kindel Media via Pexels

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Posted In: Ed SchmultsPatients Mutual Assistance Collective CorporationCannabisNewsPenny StocksMarkets

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