Craig W. Smalley, who has a Masters in Taxation, wrote a three part article on how Internal Revenue Code Section 280E affects the federal income taxation of businesses that grow or sell marijuana. The first article starts with:
“Following the 2016 elections, marijuana is now legal in some capacity in 28 states. However, even though it’s legal in certain states, the federal government considers the drug an illegal Schedule I narcotic. Resultingly, business owners in the marijuana industry have hit a wall with IRC §280E, which states:
‘No deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of Schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any State in which such trade or business is conducted’.”
