Attention FAE Customers:
Please be aware that NASBA credits are awarded based on whether the events are webcast or in-person, as well as on the number of CPE credits.
Please check the event registration page to see if NASBA credits are being awarded for the programs you select.

IRS Warns 280E Still Governs Cannabis; Some Companies Say It Doesn’t Apply to Them

Ruth Singleton
Published Date:
Jul 5, 2024


The IRS recently issued a reminder to taxpayers that cannabis remains a Schedule I controlled substance, and under Internal Revenue Code Section 280E, cannabis businesses may not receive “deductions or credits for any amount paid or incurred” in carrying out their business.

In May, the U.S. Department of Justice started the process of reclassifying cannabis as a less dangerous drug, submitting a notice in the Federal Register that would reclassify cannabis as a Schedule III drug, alongside ketamine and some anabolic steroids, from its current classification as a Schedule I drug, alongside heroin and LSD, under the Controlled Substances Act.

The IRS took note of  this action by the Justice Department. But, it added, "Until a final rule is published, marijuana remains a Schedule I controlled substance and is subject to the limitations of Internal Revenue Code Section 280E."

The IRS reported that “[a]lthough 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 is taking steps to address these claims.”

The agency emphasized that Section 280E “applies to businesses that sell marijuana, even if they operate in states that have legalized the sale of marijuana. Section 280E does not, however, prohibit a participant in the marijuana industry from reducing its gross receipts by its properly calculated cost of goods sold to determine its gross income.”

The IRS referred taxpayers to its frequently asked questions and other information related to the cannabis industry on

CPA Practice Advisor suggested that one of the cannabis companies the IRS was warning was Trulieve. It cited Politico, which reported—relying on tax experts who work with the cannabis industry—that some large cannabis companies have begun seeking tax refunds in anticipation of the scheduling change. Politico, citing MJBiz Daily, reported that Trulieve, a cannabis seller based in Florida, announced that it had received more than $100 million in tax refunds after challenging whether it was limited by Section 280E.

Politico reported that some experts believe Trulieve is claiming that Section 280E doesn’t apply to it because the business is based on intrastate commerce—and it does not engage in interstate commerce, which Congress can regulate.

Politico noted that the U.S. Supreme Court, in the 2005 case Gonzales v. Raich, rejected that argument.

MJBizDaily interviewed Rachel Gillette, a partner at Denver-based law firm Holland & Hart who warned that this argument may not have been the basis of Trulieve’s refunds and that other cannabis businesses should do their own legal analyses before trying to replicate Trulieve's tax refunds. “While we do know that the (IRS) processed the refund claim, we don’t really know much more than that,” said Gillette. “We don’t know, most importantly, Trulieve’s legal basis for their successful claims.There could be a lot of different reasons why the refund claim was made, and why it was processed by the IRS.”

Gilette added that the IRS could still claw it back the refund. “So, the claims are ‘successful’ only to the extent that the IRS doesn’t audit them and find they were not entitled to the refunds. The IRS can audit returns for up to three years and, in certain cases, can go back even further."

In an interview with Politico, CPA Michael Harlow, a partner at CohnReznick, said the cannabis companies that have sought refunds from the IRS are aware their claims might not succeed. Yet they probably believe that their cases are in a stronger position now, since cannabis is on the way to being rescheduled. “They’re taking a position that’s aggressive and forcing the IRS to either process or litigate,” he said.


Click here to see more of the latest news from the NYSSCPA.