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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.<\/p>\n
(Added Pub. L. 97\u2013248, title III, \u00a7\u202f351(a), Sept. 3, 1982, 96 Stat. 640.)<\/p><\/blockquote>\n
The Controlled Substances Act (CSA) expressly prohibits possession and commerce in marijuana. 21 U.S.C. \u00a7\u00a7 841(a)(1), 846. \u00a0All marijuana is prohibited, no exceptions. <\/span><\/p>\n
However, a different law that authorizes federal funds to the Department of Justice contains an exception to the prohibition of marijuana pursuant to the CSA – at least in Section 538 of the Budget that has defunded the war on medical marijuana.<\/span><\/p>\n
Despite this, state law compliant cannabis dispensary businesses still have problems with double taxation due to Section 280E of the Internal Revenue Code (IRC)<\/strong><\/em><\/p>\n
If you need a cannabis attorney,<\/a> or a consultant to help you with your IRC 280E compliance, which may include a management company – feel free to call us from our website.<\/p>\n
<\/p>\n
Thomas Howard<\/h3>\n
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“IRC 280E has the cannabis industry paying more taxes than any other legitimate business in the United States.”<\/p>\n
IRC 280E creates havoc for medical marijuana businesses<\/p>\n
Photograph by Lorem Ipsum via Unsplash<\/span><\/p>\n
Here\u2019s the takeaway from IRCE 280e<\/h3>\n
In 1980 a coke dealer got busted, but his attorney said that he should be able to deduct the cost of his illegal cocaine sales business. \u00a0As a result,\u00a0Congress passed IRC280E<\/a>\u00a0and forbid deducting costs of \u201ccarrying on\u201d a business of selling schedule 1 substances, which are prohibited by state or federal law.<\/p>\n
Businesses typically deduct two main costs \u2013 those of goods sold, and those of \u2018carrying on\u2019 the business.<\/h4>\n
The costs for carrying on a business are those related to operations in sales. \u00a0For example, your rent, phone bill, utilities, employees, marketing, little baggies for the above-described coke dealer, everything except the costs of the goods sold (COGS).<\/p>\n
Fun Fact: Congress did not include COGS in the law banning the \u2018carrying on\u2019 deductions for fear of a constitutional challenge.<\/p><\/blockquote>\n
The marijuana industry makes this distinction quite easy. Costs of goods sold are those incurred in growing and preparing the crop for market, while those of carrying on the business are those related to its sale. \u00a0As a result, cultivation centers have to worry about the double tax less than dispensaries.<\/p>\n
IRC 280e will apply until Marijuana out of CSA<\/h3>\n
The costs a cultivation center incurs go to the cost of producing the cannabis, while the costs incurred by the dispensary are all related to its sale.<\/p>\n