Marijuana Law, Policy & Reform

Editor: Douglas A. Berman
Moritz College of Law

Saturday, January 20, 2018

"An Introduction To The Internal Revenue Code For Cannabis Businesses"

The title of this post is the title of this new article published at the Cannabis Law Report.  I am distinctly proud of this article because it was authored by Chris Nani, a student in my Marijuana Law & Policy seminar last semester.   Here is a portion of this piece: 

Marijuana-related businesses face an additional hurdle other businesses do not. Congress specifically implemented § 280E to prevent any business trafficking illegal drugs from receiving deductions. 26 U.S.C. §280E. The provision prohibits any deductions or credits to businesses trafficking schedule I or II illegal drugs within the meaning of the Controlled Substances Act of 1970. Marijuana is currently classified as a schedule I drug. Because marijuana-related businesses such as dispensaries or farmers traffic marijuana they either are not applicable for any tax deductions under § 162 or are extremely limited on what they can deduct.

The IRS’ current stance on what marijuana-related businesses can deduct is summarized in Chief Counsel Advice 201504011. It allows for marijuana businesses to deduct some of their cost of goods sold (COGS). The memo allows for deductions under § 471 as long as they comply with § 280E. § 471 allows for the inventoriable cost of any good that can be capitalized to be deductible. 26 U.S.C. § 471. Meaning, raw materials or labor costs are deductible because they are used within a year to create a product. Although the IRS updated the tax code with § 263A to permit additional expenses included under inventoriable cost, the IRS memo prohibits marijuana-related businesses from using § 263A in their calculation of COGS.

https://lawprofessors.typepad.com/marijuana_law/2018/01/an-introduction-to-the-internal-revenue-code-for-cannabis-businesses.html

Business laws and regulatory issues, Taxation information and issues | Permalink

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