02 July 2024

IRS to Cannabis Businesses: Not So Fast on 280e Deductions

On Friday the IRS released the following statement on Code Section 280e after a couple of marijuana MSO’s, Trulieve and TerrAscen and Ascend Wellness, filed amended returns in hopes of receiving refunds valued over $100 million. “Until a final federal rule is published, the Internal Revenue Service today reminded taxpayers that marijuana remains a Schedule I controlled substance and is subject to the limitations of Internal Revenue Code.”  This all comes after an April Justice Department recommendation that cannabis be rescheduled as a Schedule III Controlled Substance.

In Trulieve’s case, they have claimed to have received $113 million in 280e refunds. But the IRS states, “these claims are not valid” and “is taking steps to address them.”

280e disallows deductions and credits for any business or trade that illegally traffics in Schedule I or II controlled substances, currently including marijuana. But 280e does not prohibit marijuana businesses from using correctly calculated cost of goods sold to reduce its gross receipts in determining gross income. Even still, marijuana businesses tax rate is 40-80% compared to the 21% corporate tax.

The Justice Department is seeking public comments on the “unique economic impacts” of its rescheduling recommendation. Stating that the multibillion-dollar industry “stands to benefit from potential federal tax relief from reform.” The 60 day public comment runs until July 22.

If you have questions, please contact one of the authors or a member of Miller Johnson’s Cannabis Practice Group.