On Friday, the Internal Revenue Service (IRS) issued a reminder that marijuana remains classified as a Schedule I controlled substance and is thus subject to the limitations of the Internal Revenue Code, specifically Section 280E.
Current Tax Rules Remain Unchanged
In a press release, the IRS stated: “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.”
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Section 280E disallows all deductions or credits for any amount paid or incurred in operating a business that involves the illegal trafficking of Schedule I or II controlled substances, which includes marijuana under federal law. This applies even to businesses in states where marijuana sales are legal.
This clarification comes in response to some marijuana businesses filing amended returns seeking refunds for taxes paid under Section 280E.
“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 stated.
Potential Rescheduling Of Marijuana
On May 16, 2024, President Joe Biden announced that his administration was officially moving to reschedule marijuana under federal law, describing the initiative as a “monumental” step.
Biden remarked: “Today my administration took a major step to reclassify marijuana from a Schedule I drug to a Schedule III drug. It’s an important move toward reversing long-standing inequities.”
A few days later, on May 21, the Justice Department published a notice of proposed rulemaking to consider rescheduling marijuana under the Controlled Substances Act.
This proposal, if finalized, could shift marijuana from Schedule I to Schedule III, potentially easing some of the tax burdens on marijuana businesses.
However, the IRS highlighted that “until a final rule is published, marijuana remains a Schedule I controlled substance.”
Industry Reactions And Ongoing Claims
Several multi-state marijuana operators have sought refunds for what they consider excess taxes paid due to Section 280E.
Notably, Trulieve Cannabis Corp TCNNF, a key financial supporter of Florida’s legalization campaign, disclosed receiving a $113 million refund request. Other companies, such as TerrAscend Corp TSNDF and Ascend Wellness Holdings Inc AAWH, have also filed for 280E refunds.
In response, the IRS noted it is taking steps to address these claims, indicating that they are under review. The agency reiterated that the current tax laws remain in force and businesses must comply with the existing regulations.
Congressional Actions And Future Guidance
Efforts to change the tax treatment of marijuana businesses are also ongoing in Congress. Representative Earl Blumenauer (D-OR) reintroduced a bill to amend the IRS code to allow state-legal marijuana businesses to take federal tax deductions available to other industries.
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