Tax Court Upholds Constitutionality of Rule Prohibiting Deductions for Marijuana Businesses

By:  Amanda Wilson

I recently wrote about the Tax Court decision in Northern California Small Business Assistants Inc. v. Commissioner, which addressed whether Section 280E’s denial of tax deductions to marijuana businesses violates the Eighth Amendment as an excessive penalty.  While the Tax Court upheld the constitutionality of Section 280E, the dissenting opinions provided hope for future challenges.  The discussion can be found here.

No Tax Deduction for Medical Marijuana Company

piggy banksBy:  Amanda Wilson

As more and more states are allowing for medical marijuana or other legal uses of marijuana, it is important to recognize that the federal government’s treatment of marijuana as a controlled substance can have more than criminal consequences.  It can result in a hefty tax bill!

Section 280E  of the tax code denies deductions for expenses paid or incurred in the carrying on of any trade or business involving a federal controlled substance.  As a result, the IRS’s position is that any business that deals with marijuana cannot deduct their operating expenses (including employee salaries).  The IRS’s position was recently upheld by the Tax Court in the case Canna Care Inc. v. Commissioner, T.C. Memo. 2015-206.  The inability to deduct operating expenses may drastically impact the viability of this growing new industry.



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