Thursday, March 17, 2011

IRS creating problems for CA dispensaries

Section 280E of the internal revenue code states 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.

And the IRS has been using this provision to prevent marijuana dispensaries from taking business expense deductions, including preventing them from taking deductions for the cost of goods sold.  The US Tax Court in 2007 decided that selling medical marijuana in a legal dispensary constitutes trafficking a controlled substance under this statute, but that businesses can still take deductions which are related to the actual sale of marijuana.  

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