Once the Drug Enforcement Administration’s (DEA) proposal to move marijuana to Schedule III is finalized, marijuana businesses following state law will be allowed to take tax deductions like any other legal business, says the Internal Revenue Service (IRS).
In a press release sent today, the IRS confirms that once marijuana is moved to Schedule III, Section 280E of the agency’s code will no longer apply to legal marijuana businesses.
Section 280E “disallows all deductions or credits for any amount paid or incurred in carrying on any trade or business that consists of illegally trafficking in a Schedule I or II controlled substance within the meaning of the federal Controlled Substances Act.”
While confirming the change, the IRS warns that “Until a final federal rule is published, the Internal Revenue Service today reminded taxpayers that marijuana remains a Schedule I controlled substance and is subject to the limitations of Internal Revenue Code”, noting that “The law with respect to the schedule or classification of marijuana has not changed. Taxpayers seeking a refund of taxes paid related to Internal Revenue Code Section 280E by filing amended returns are not entitled to a refund or payment.”
The IRS says that “Although the law has not changed, some taxpayers are filing amended returns. The grounds for filing such claims vary, but these claims are not valid. The IRS is taking steps to address these claims. This applies to businesses that sell marijuana, even if they operate in states that have legalized the sale of marijuana.”
The IRS says that Section 280E “does not, however, prohibit a participant in the marijuana industry from reducing its gross receipts by its properly calculated cost of goods sold to determine its gross income.”
The IRS concludes its press release by stating that “On May 21, 2024, the Justice Department published a notice of proposed rulemaking with the Federal Register to initiate a formal rulemaking process to consider rescheduling marijuana under the Controlled Substances Act. Until a final rule is published, marijuana remains a Schedule I controlled substance and is subject to the limitations of Internal Revenue Code Section 280E.”
