Absent Final Federal Rule, IRS Reaffirms that Cannabis Still Subject to Limitations of 280E

News from earlier this year that the Biden administration was poised to move forward with a Department of Health and Human Services recommendation to reclassify cannabis from a Schedule I drug to a Schedule III sent positive outlooks across the industry centered around the elimination of Internal Revenue Service’s code Section 280E. Section 280E prohibits legal cannabis companies from deducting what would otherwise be ordinary business expenses.

Many multi-state operators have claimed refunds on the basis that code Section 280E is no longer applicable to legal cannabis operators. The IRS recently issued a statement reminding owners of cannabis companies that without a published final federal rule reclassifying cannabis to a Schedule III drug, Section 280E still applies, even in states that have legalized cannabis.

Hold off on amended tax returns

Without an official ruling of reclassification, cannabis remains a Schedule I controlled substance and taxpayers are not entitled to refunds related to Section 280E. The IRS has been receiving amended returns with claims based on different criteria but has stated that these claims are invalid. They are taking steps to address these claims to avoid confusion and wasted resources.

Owners of cannabis companies are still eligible to reduce their gross receipts by properly calculating cost of goods sold to determine gross income.

Await further guidance from a cannabis specialist

Our dedicated cannabis accounting specialists have been assisting clients with 280E and monitoring industry trends as more states legalize cannabis for medical and recreational use. We will continue to monitor information from the IRS and other governing bodies to inform our contacts of any developments pertinent to their businesses including the publication of a final federal reclassification.

07/08/2024