We get this question a lot! Here is our firm's response:
🌿We do advise the need to file 1099s. This is the stance our firm has taken, for these reasons:
1) The payment is to an individual (assumingely greater than $600/year), not an entity.
2) By definition in the MMMA (law Caregivers are following), Caregivers are not "producing inventory"- they provide cultivation services on behalf of their patients. Overages are not "inventory" they are selling, in accordance with the MMMA.
3) MMFL facilities need adequate records of their COGS deductions. Would the IRS allow payments to individuals to be considered deductible COGS without 1099 reporting in place?
Typically we find that facilities who question needing to file 1099s do so because a Caregiver(s) does not want to be "on record" in that manner and have the income reported, not because the MMFL facility itself is against filing the 1099s. If the facility succumbs to not filing for this reason, is this aiding in tax evasion on behalf of the Caregiver?
Additionally, there is a need to keep in mind that any non taxable inventory product purchase relationships should have MI 3372 forms on file, essentially requiring the same information disclosures on a W9 form.
These are all points for consideration in determining what is the best decision for the MMFL facility. Our firm has chosen to take a conservative approach in all "gray" areas such as this. We believe it is better to err on the side of caution, as these businesses are already under a magnifying glass. 🔎
