The Internal Revenue Service (IRS) recently reminded taxpayers that marijuana continues to be classified as a Schedule I controlled substance. This status subjects marijuana businesses to specific limitations under the Internal Revenue Code, specifically Section 280E. Despite ongoing discussions and proposed changes at the federal level, the classification of marijuana remains unchanged, and taxpayers should be aware of the implications for their tax filings.
As it stands, taxpayers seeking refunds for taxes paid under Section 280E by filing amended returns will not be entitled to any refunds or payments. This section of the tax code 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 regardless of state-level legalization.
Although some taxpayers have been filing amended returns in hopes of reclaiming taxes paid, these claims are not valid under current federal law. The IRS is actively addressing these claims to ensure compliance with Section 280E. It’s crucial for businesses involved in the marijuana industry to understand that while they cannot claim deductions or credits for expenses, they are allowed to reduce their gross receipts by the properly calculated cost of goods sold to determine their gross income.
The Department of Justice has initiated a formal rulemaking process to consider rescheduling marijuana under the Controlled Substances Act, with a notice of proposed rulemaking published on May 21, 2024. However, until a final rule is enacted, marijuana remains a Schedule I controlled substance. For more information, the IRS provides resources and frequently asked questions related to the cannabis industry on its website, IRS.gov.