January 30, 2015

IRS Tax Memo Will Hurt Marijuana Businesses

January 30, 2015
irs 280e medical marijuana deductions

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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