irs 280e medical marijuana deductions
Marijuana Business News

IRS Tax Memo Will Hurt Marijuana Businesses

irs 280e medical marijuana deductionsI always say, if you are in the marijuana industry, or are trying to get into the marijuana industry, you better know about 280e reform. 280e is a federal tax provision that prevents businesses from making deductions for activities that involve banned controlled substances. Most businesses can’t survive without tax deductions, and when it comes to marijuana businesses, the tax code is far from friendly. There was a loophole that some marijuana businesses were using to make deductions related to expenses of ‘cost of good sold.’ That loophole was closed recently by the IRS, which will cost the industry hug sums of money. Per Marijuana Business Daily:

Last Friday, the IRS sent a memo to a Denver lawyer in response to an inquiry regarding 280E, a section of the U.S. tax code that prohibits deductions for any business activity that involves trafficking in controlled substances.

Tax professionals say the memo appears to close a loophole that many cannabis businesses have been using to at least partially get around 280E, whereby marijuana companies classify certain expenses as cost of goods sold, or COGS, a specific categorization for qualifying costs.

In essence, the IRS outlined its position on that strategy, providing a much narrower definition of what can be classified as COGS than many cannabis companies are currently using.

280e provisions were already unfair, and this memo makes things even worse. Legitimate marijuana businesses are no different than any other business, in that they pay their fare share and contribute to society. They provide jobs like any other business, and pay licensing fees like any other business. Isn’t it time that they are taxed like other businesses, instead of being driven into the ground by the federal tax code?

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  • G. Wilikers

    This is just headed where it ought to go: the courts. I am waiting for another 10th Amendment fight, I expected one last year, when Colorado first legalized it, but, apparently, the feds didn’t feel particularly strong in this area. With a, what, 38% approval rate, Gestapoizing a state population after it had legally, morally voted the “banned/controlled substance” of Marijuana concept into oblivion. And the next conflict pivot point past this one will probably be the definition of “controlled substance” and the Drug Industry, the AMA and hospitals, as well as other points along the manufacture and distribution chain of our national Pharmacopoeia.

  • Nathaniel

    We are now in a most precarious position as advocates and a movement. There have been a wealth of important gains made by the public, but none in the region where it matters most, the courts. The supreme court has made many a bad rulings of late [2010 Patriot Act Provision overturned, Citizens United ruling] and there are no signs they would side with the states rights if the 10th amendment debate begins.

    How does this critical issue get resolved if the people speak, but the courts dissent? I think we may need a few more states to legalize before we force the feds hand. It would be unfortunate to continue the business status quo, but I feel our best chance at success in the courts is to prove legalization is here to stay.

    Perhaps it is enough to attack this issue from the angle that medical marijuana businesses are doing a public service and as such should be given an NPO exemption and license to bank.

    Regardless, I am both excited and leery of what may come of a court battle, if it comes anytime soon.

    • NORML is a corporation. You want them silenced?

      • Nathaniel

        The Citizens United decision completely altered how modern politics are now played. “Money” is a voice that should be protected by the first amendment is nothing short of insane.
        Do I want NORML silenced? No, but I sure as hell don’t want them to over spend their opponent to win a debate in the court of public opinion. The mass infusion of money into politics has made races for seats and proposition/initiative pro/con commercials unbearable and convoluted.
        If folks can’t stand to sit down and read about candidates and ballot proposals they have no business voting to begin with. The swaying of public opinion via radio/TV ads and mailers has just made a mockery of this once great Republic.

        • Well then. You are going to need better citizens. Willing to study the issues and speak out. To counter what ever “corporate” voice you don’t like.

          BTW what about rich individuals spending their own money? Should they be silenced?

          The corporate form allows the weaker (economically) to band together to combat the rich. I don’t think you have thought this through.

          You probably favor the FCC controlling the ‘net (‘net “neutrality). Well it is more than possible they could declare talk about doing illegal stuff illegal. Wouldn’t that be great?

          ==============

          There was a candidate recently with no money who beat one with lots. I think you have made money a god.

        • I don’t want government given any more powers over speech than they already have. Haven’t you had enough government yet?

          Every tax, every regulation comes with an army of bureaucrats and behind that an army (with guns) of enforcers. Haven’t you had enough enforcement to last a lifetime?

  • Referring to the federal government’s forfeiture regime as “an important tool” in fighting crime, attorney general nominee Loretta Lynch staunchly defended the concept of civil asset forfeiture during the first day of her confirmation hearings.

    After Sen. Mike Lee (R-UT) questioned the “fundamental fairness” of Americans having their property taken by the government without any proof (or often even suspicion) of criminal wrongdoing, Lynch asserted that there are “safeguards at every step of the process” to protect innocent people, “certainly implemented by [her] office … as well as an opportunity to be heard.”

    Even setting aside the litany of federal civil asset forfeiture abuses that have come to light recently across the country, Lynch’s reference to her own office’s handling of civil forfeiture is particularly concerning.

    Lynch is currently the U.S. attorney for the Eastern District of New York, and her office, despite its safeguards, is responsible for one of the more publicized and questionable uses of the asset forfeiture program. In May of 2012 the Hirsch brothers, joint owners of Bi-County Distributors in Long Island, had their entire bank account drained by the Internal Revenue Service working in conjunction with Lynch’s office. Many of Bi-County’s customers paid in cash, and when the brothers made several deposits under $10,000, federal agents accused them of “structuring” their deposits in order to avoid the reporting requirements of the Bank Secrecy Act. Without so much as a criminal charge, the federal government emptied the account, totaling $446,651.11.

    For more than two years, and in defiance of the 60-day deadline for the initiation of proceedings included in the Civil Asset Forfeiture Reform Act of 2000, Lynch’s office simply sat on the money while the Hirsch brothers survived off the goodwill their business had engendered with its vendors over the decades.

    That case, which was handled by the Institute for Justice, finally ended just days ago when Lynch’s office quietly returned the money, having found no evidence of any wrongdoing. The Hirsch brothers and their business survived, but just how many law-abiding small businesses can afford to give the government a 33-month, interest-free loan of nearly half a million dollars?

    Civil asset forfeiture is rife with government abuse. The tales of lost livelihoods and predatory government agencies are legion. The data support the indignation. A bipartisan coalition of congressmen and even the current attorney general himself have acknowledged the need for reform.

    http://www.cato.org/blog/loretta-lynchs-worrisome-answer-civil-asset-forfeiture

  • Cyndysub

    The anti crowd are frantically trying to bail water out of their sinking shipt but it will sink anyway with such a big hole in the bottom.