Law

US Tax Court denies deduction request under §280E, but leaves the door open for future challenges

By Shuki Greer, Esq.

Last week, the Tax Court continued the line of cases denying tax deductions under Internal Revenue Code §280E. That section says that any business which is “trafficking in controlled substances” cannot receive many of the traditional deductions that a business may take. Otherwise put, this means that a company must pay taxes on all of its incoming revenue before it subtracts most of its expenses.

This law can be a severe punishment for a cannabis company that may be operating entirely legally under state law. Unfortunately, the federal government still considers them to be “drug-dealers” and holds this punitive tax measure over their heads.

The case before the tax court involved a dispensary that filed taxes and took deductions for its business expenses. The IRS sent them a bill of $1.26 million, plus another 250K in fines. The company filed suit, asking the court to declare that it did not have to pay those bills.

A divided court rejected the company’s three arguments. In addition to the majority opinion, there were two concurring opinions and two dissenting opinions. Of particular interest is the Gustafson dissent, which opens up a new avenue for declaring §280E to be a Constitutional violation. Essentially, Gustafson argues, that the 16th Amendment allows Congress to tax income. Income is defined as “gain”, or net profits, minus costs, to get those profits. So for Congress to then disallow normal business expenses, it means that they are taxing more than actual income, which violates the 16th Amendment.

This argument was only agreed to by one other Judge on the tax court, which ultimately ruled against the dispensary. However, in the future, as the public opinion shifts, the policies behind these prohibitive rules may fall away, and we may not be far away from a court coming to the opposite conclusion. Legal Cannabis companies are working tirelessly to follow the law, and they should be rewarded for doing so. Continuing the regime of these prohibitive financial policies constitutes a “subsidy for the black market.” The way to solve this problem is to shift the financial incentives in favor of operating under a legal framework, and avoiding this severe tax problem is the best way forward.

tax codes picture with calculator and tax document

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Benjamin Caplan, MDUS Tax Court denies deduction request under §280E, but leaves the door open for future challenges
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Info about Traveling & Cannabis

Here is a nice summary of information for US medical cannabis patients with respect to traveling while on a cannabis regimen (what to think about, including plane/trains/automobiles, helpful tips, which states have reciprocity, and/or access to medical cannabis options, etc)

https://www.safeaccessnow.org/travel

Benjamin Caplan, MDInfo about Traveling & Cannabis
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Case Studies Reveal Difficulties in Differences between State Cannabis Laws

Crossing the Line: Care of a Pediatric Patient with Intractable Seizures and Severe Neuropathic Pain in Absence of Access to Medical Marijuana

A recent case report discussing a six-year-old patient suffering from a seizure disorder has exposed the difficulty is receiving treatment across state lines. The patient was prescribed medical marijuana that alleviated the severity and duration of her seizures but was weaned off of that medication when traveling to Nebraska for a therapeutic surgery, due to the legal status in the state. This case study exposes the difficulty of treating patients across the country due to the legal variability of cannabis across states.  

Author’s summary reflections:

“The current state-specific approach to medical marijuana notably burdens patients, families, and health care systems with a fragmented approach to symptom management based on local context. The stigmatization or legal implications of medical marijuana in certain settings may lead well-meaning providers to avoid asking about use or to struggle with appropriate response. Provider response to parents reporting medical marijuana use in Schedule I settings notably varies from direct inquiry, feigned ignorance, or informed ignoring. Ideally, providers would compassionately and competently inquire about pharmaceutical and nonpharmaceutical interventions (to include medical marijuana use) as part of comprehensive palliative care symptom assessments.”

View this review (yellow link) or download:

This paper is also stored here:     http://bit.ly/2IxPoWN    inside the CED Foundation Archive

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Benjamin Caplan, MDCase Studies Reveal Difficulties in Differences between State Cannabis Laws
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California veterinarians & Cannabis

Vets in CA can now discuss the use of cannabis for patients and their pets legally and soon, prescribe cannabis medication. Although there is still more much research to be done, adults can already legally buy products, so involving professional vets can help keep pets safe http://bit.ly/33dmbIK

Benjamin Caplan, MDCalifornia veterinarians & Cannabis
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Video: Controversial Questions in Cannabis Today

As cannabis finds its place back into modern human culture quickly, there is much still to be learned. As the science grows and adapts to modern need and expectations, the “can we” may be out-pacing the “should we.” On the other hand, there are circumstances where modern culture really “should be” and is handicapped by years of misinformed stigma.

Here, a few controversial questions about cannabis:

Should teachers be allowed to use cannabis around children? 

Should spiritual leaders be allowed to use cannabis, as they have for millennia?

Should taxi drivers be allowed to use cannabis on the job?

Should pilots be allowed to use cannabis?

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Benjamin Caplan, MDVideo: Controversial Questions in Cannabis Today
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Video: Legalization of Cannabis?

Medical marijuana is legal in 33 states, and recreational marijuana is legal in 11. But on a federal level, the use and possession of marijuana is illegal for any purpose. The illegal status of cannabis prohibits research opportunities and hinders the safety of cannabis sales.

Watch this video for 4 reasons to legalize marijuana on a federal level

Benjamin Caplan, MDVideo: Legalization of Cannabis?
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