Sacramento Law Group

Why The IRS Considers Marijuana Dispensaries To Be Drug “Traffickers” For Purposes of IRC 280E

The Internal Revenue Service views your marijuana dispensary through the lens of IRC 280E; the oft-cited section of the internal revenue code that denies business deductions to ‘traffickers’ of controlled substances.   No matter that your marijuana dispensary serves patients, pays state excise taxes, and complies with state regulations; to the IRS your marijuana dispensary is no different than a cocaine trafficker within the context of IRC 280E.

Buying and Selling

The inescapable feature of a marijuana dispensary is the buying and selling of marijuana.  That can take different forms, such as in CHAMP where patients paid a membership fee in exchange for marijuana and various ‘caregiving’ services, to more straightforward buy/sell models.  Whichever model, all marijuana dispensaries essentially buy and sell marijuana.  Accordingly, marijuana dispensaries who have challenged the application of IRC 280E on the basis that they are not illegally trafficking have been met with tax court decisions that define “trafficking’ in reference to the dictionaries definition of traffic as denoting “to engage in commercial activity: to buy and sell regularly.”  As marijuana is a Schedule 1 Controlled Substance under the Controlled Substances Act, the inherent commercial necessity of buying and selling marijuana that is the cornerstone of any dispensary has relegated these businesses to the realm of “trafficking” for purposes of IRC 280E.  Accordingly, any marijuana dispensary should be prepared for the application of IRC 280E to their tax return, and if they’ve been issued a notice of deficiency, hire a cannabis taxation attorney who understands how to negotiate with the IRS for a lower tax bill.

Questions About IRC 280E?

If your marijuana business has federal or state tax debt call cannabis tax lawyer Jin Kim for a free consultation. Many cannabis businesses are hit with a notice of deficiency due to 280E, but in many cases negotiated settlement can be a viable alternative to expensive litigation.

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