What examiners focus on
Federal examinations concentrate on inventory and cost of goods sold: reseller versus producer classification, whether selling costs were pushed into inventory, whether balances reconcile to track-and-trace, and whether related-party charges are arm's length.
Missouri Department of Revenue reviews focus on cannabis tax collection and remittance, sales tax accuracy and the state income tax position including the Article XIV deduction.
The readiness package
Everything below should exist before it is requested, not after.
- Written inventory costing methodology with the rationale documented
- Allocation support for labor, square footage and shared overhead
- Metrc reconciliation history with variance explanations
- Cash handling procedures and completed count logs
- Related-party agreements with pricing analysis
- Reconciliation between the federal and Missouri expense bases
Handling the examination itself
Route all correspondence through your representative. Review every document request before producing anything, answer completely but within scope, and never provide informal explanations that expand the examination.
If documentation is incomplete
Reconstruct what the operational and track-and-trace records support, and be candid internally about which positions are strong. Knowing where the exposure sits is what allows a sensible strategy rather than a hopeful one.
Building readiness into the routine
Audit readiness is a byproduct of a good monthly close. Reconcile inventory, document adjustments, retain workpapers and refresh the methodology memo annually, and preparation stops being a project.
Frequently asked questions
How far back can an examination reach?
Generally three years from filing, extended where substantial understatement is asserted and open indefinitely for unfiled returns.
Should we respond to an initial notice ourselves?
No. Engage representation before responding. Early informal answers routinely expand scope in ways that are difficult to walk back.
