FAQs About IRS Section 280E And The Ticket Business

FAQs About IRS Section 280E And The Ticket Business

26 U.S. Code § 280E – Frequently Asked Questions 1. What exactly is Section 280E? 2. MJ Consulting is an advertising and marketing firm. Why are you giving tax advice? 3. But isn’t marijuana legal in my state? 4. I still don’t understand why I can’t deduct normal business expenses? 5. So what does that mean to me? 6. Well how can I deduct expenses for a ticket business in the same place as my Marijuana business? 7 What are considered Cost of Goods Sold? 8. Why can’t I just put in a sandwich shop or some other kind of business why the ticket business? 9. What are you actually doing and what do I get? 10. How can you take deductions for this business if they are not real? 111. I heard that the IRS is disallowing the CHAMPS decision from 2007 and that we cannot get any deductions. 12. What if the Tax Court rules this is invalid? 13. How much is this going to cost me? 14. I mean you’re telling me there is no guarantee this is going to work out. Why would I pay for something as unsure of as this? 15. I just don’t have the time nor the employees to handle anything more like this. I’m way too busy now with my existing business and can’t do this? 16. I have a recreational store in Washington state can I do this here? 17. How much can I make at this business? 18. There is another dispensary/rec store a few miles down the road. What kind of guarantee do I have that they...
Rationale of 280E Deductions

Rationale of 280E Deductions

There is currently some hope for cannabis businesses in two respects. First, IRS Code Section 280E is limited to the sale of (or “trafficking in”) marijuana. Thus, if a taxpayer is involved in selling medical marijuana and also in another business, such as caregiving to sick patients, the taxpayer could possibly be in a position to write off business expenses in association with the caregiving function or another business related to marijuana.     For example, in Californians Helping to Alleviate Medical Problems (CHAMP), the Tax Court held IRS Code Section 280E would not preclude the taxpayer from deducting expenses as a result of a trade or business apart from that of illegal trafficking in controlled substances, basically because the taxpayer is also engaged in trafficking a controlled substance. Of course, practically speaking, the taxpayer’s characterization of a deduction will not be rubber-stamped by the IRS if it appears to be artificial and cannot be reasonably reinforced by the facts and circumstances of the individual case. Second, while IRC § 280E disallows any kind of business deduction for a marijuana seller’s ordinary and necessary business expenses, costs of goods sold – that may be, the carrying value of goods sold within a particular period – are excluded using this rule. Senate Report 97-494(I) explained the reasoning for this as follows: “All deductions and credits for amounts paid or incurred in the illegal trafficking in drugs listed in the Controlled Substances Act are disallowed. To preclude possible challenges on constitutional grounds, the adjustment to gross receipts with respect to effective cost of goods sold is not affected by this provision of...
Internal Revenue Code Section 280E

Internal Revenue Code Section 280E

Recently, the provisions of Internal Revenue Code section 280E are being applied by the Internal Revenue Service (IRS) to businesses operating in the medical marijuana industry. Section 280E provides: No deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any State in which such trade or business is conducted. Even though 23 states and Washington DC have medical marijuana laws (and two of those states now allow marijuana to be consumed without a doctor recommendation) along with 4 states with legal recreational cannabis consumption, the IRS is applying section 280E to deny business deductions. Businesses operating legally under state law argue that section 280E should not be applied because Congress did not intend the law to apply to businesses that are legal under state law. The IRS asserts that it was the intent of Congress to apply the provision to anyone “trafficking” in a controlled substance, as defined under federal law (as stated in the text of the statute). Thus, section 280E is at the center of the conflict between federal and state laws with respect to medical marijuana. Such is so even when the marijuana is medical marijuana recommended by a physician as appropriate to benefit the health of the user, as explained by the United States Tax Court in Californians...

IRS Threatens to Shut Down Medical Cannabis

Twelve medical cannabis states form a national alliance, 280E Reform, to challenge U.S. IRS Tax Code 280E. The 280E Reform effort plans to bring an end to the current IRS campaign to close medical cannabis dispensaries. We are going to challenge this tax code to make sure that patients all over America have the ability to safely fill their health care needs with safe access from medical cannabis providers who are operating clearly with state laws. Oakland, CA (PRWEB) February 23, 2012 The IRS threatens to turn back the clock on medical cannabis. A national alliance of industry leaders, patients and elected officials are fighting back with a new project aimed at education and policy change. The 280E Reform effort plans to bring an end to the current IRS campaign to close medical cannabis dispensaries. The IRS campaign of aggressive audits was launched approximately 2 years ago and uses section 280E of the IRS code to deny dispensaries the ability to deduct legitimate business expenses. Denied expenses include items such as rent, payroll, and all other necessary business expenses. These denials result in astronomical back tax bills for the affected dispensaries that, if not changed, threaten to destroy the financial viability of every medical cannabis dispensary in the country—thereby ending safe and affordable access to cannabis for legally qualified patients. Section 280E was passed by Congress in 1982, long before the passage of medical cannabis laws and was intended to apply to traffickers of dangerous drugs. Last year, Congressman Pete Stark (D-CA) introduced the Small Business Tax Equity Act (H.R. 1985), which would create an exception to 280E for...

Lawmakers to Introduce 280E Reform

Originally posted MJ Investor News April 13, 2015 On April 9, 2015, Rep. Earl Blumenauer and Sen. Ron Wyden announced that they will introduce the Small Business Tax Equity Act of 2015 in Congress next week. The purpose of the bill is to amend Section 280E of the Internal Revenue Code to allow a business operating in compliance with state law to take deductions associated with the sale of marijuana as any other legal business does. Similar measures were introduced in 2011 and 2013, but died in committee. Specifically, Section 280E provides that: “No deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any State in which such trade or business is conducted.” Enacted in 1982, at the height of the War on Drugs, the Code section was designed to prevent illegal drug dealers from claiming the cost of items such as guns or boats as deductible business expenses. Today, however, the law prevents legal marijuana businesses from deducting the common expenses of running a business, such as rent, utilities and payroll. They cannot claim the Work Opportunity Tax Credit if they hire veterans, and they are limited in lawful deductions relating to construction or operation costs if they want to remodel a building for their retail operations. As a consequence, dispensaries and...