Business Deduction Restrictions For Licensed Marijuana Dispensaries Upheld By Tax Court

Experienced IRS Tax Attorneys Discuss Tax Deduction Restrictions On Marijuana Businesses

Businesses may be able to sell marijuana in states where it has been made legal, but selling marijuana is still illegal at the federal level. That means that businesses that sell the drug still have to file an annual return and pay taxes, but they are not able to deduct expenses from their business, which is considered to be trafficking in an illegal substance.
 
This rule has made things complicated for many business owners that sell marijuana and related products. Even more complicated is another rule allowing some deductions for the same business if the expenses are for a separate, non-trafficking part of the business.

Tax Court Continues To Disallow Tax Deductions Under Section 280E

 
A recent case, involving the business Desert Organic Solutions, upheld earlier court rulings that the deductions the business took were not allowed. In an earlier opinion, a lower court held that Section 280E precludes deductions for business expenses related to the sale of marijuana, but that expenses for non-trafficking business were allowable. The judge considered whether different activities constituted a single trade. For example, if a marijuana business also sells t-shirts related to the business, are the expenses for those t-shirts deductible. In that example, the court would rule that the t-shirts are part of the same business, so the expenses were not deductible.
 
To decide whether business expenses could be deducted, the court must consider how interrelated the business activities are, including whether they have separate records, whether they have the same business purposes, and whether they are organized separately, among other things. The owner of Desert Organic Solutions argued that the portion of its business that sold paraphernalia such as rolling paper and pipes was separate from its marijuana selling business, so it should be allowed to deduct those business expenses. However, the court ruled that the businesses were not separate, so the deductions were not allowed, and the later tax court upheld that ruling.
 

Contact Professional Marijuana Industry Tax Lawyers In Scottsdale, AZ

 
Tax law surrounding marijuana businesses is still complicated and will continue to be so long as federal and state laws differ. If you own a business that sells marijuana, you need to work closely with a tax attorney to understand your tax obligations. Otherwise, you may end up making mistakes that can lead to serious penalties. Call Silver Law PLC in Arizona to talk to an experienced tax attorney about how the tax law applies to your business. If you have been audited or are facing penalties because of a previous return, our attorneys can fight to help you avoid penalty or to reduce your tax obligation. Our attorneys all have experience working for the IRS, so they understand how these cases are prosecuted and how to fight them. Contact our office today to schedule a consultation with a tax lawyer and learn more about your options.

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