Here’s the takeaway from IRCE 280e

In 1980 a coke dealer got busted, but his attorney said that he should be able to deduct the cost of his illegal cocaine sales business.  As a result, Congress passed IRC280E and forbid deducting costs of “carrying on” a business of selling schedule 1 substances, which are prohibited by state or federal law.

Businesses typically deduct two main costs – those of goods sold, and those of ‘carrying on’ the business.  

The costs for carrying on a business are those related to operations in sales.  For example, your rent, phone bill, utilities, employees, marketing, little baggies for the above-described coke dealer, everything except the costs of the goods sold (COGS).

Fun Fact: Congress did not include COGS in the law banning the ‘carrying on’ deductions for fear of a constitutional challenge.

The marijuana industry makes this distinction quite easy. Costs of goods sold are those incurred in growing and preparing the crop for market, while those of carrying on the business are those related to its sale.  As a result, cultivation centers have to worry about the double tax less than dispensaries.  

IRC 280e will apply until Marijuana out of CSA

The costs a cultivation center incurs go to the cost of producing the cannabis, while the costs incurred by the dispensary are all related to its sale.

In the video, Tom explains how the precise wording of three pieces of federal law – and a bedrock principle of tax law – all come together to avoid the double taxation issue to state-law approved medical marijuana businesses.

Check out the video – and subscribe to the Cannabis Industry Lawyer’s YouTube channel to ask your question about a legal issue in the legal marijuana industry.