TaxProf Blog

Editor: Paul L. Caron
Pepperdine University School of Law

A Member of the Law Professor Blogs Network

Wednesday, August 4, 2010

Don't Bogart That Deduction: Is Medical Marijuana a Medical Expense?

Marijuana Following up on yesterday's post, which noted, based on an article in yesterday's Wall Street Journal (and an IRS Publication and MSNBC article), that folks living in states that have legalized medical marijuana cannot use their health care flexible spending accounts to purchase the marijuana with pre-tax dollars because marijuana is still illegal under federal law.  But reader Roger E. McEowen (Leonard Dolezal Professor in Agricultural Law and Director of the Center for Agricultural Law and Taxation, Iowa State University) notes that the IRS last month released a letter to Sen. Chuck Schumer (Info. 2010-0080) sanctioning the treatment of an "herb" as a medical expense:

I am responding to your letter, dated March 3, 2010, on behalf of your constituent, _____, [who] asked whether the cost of an herb prescribed by her doctor to treat migraine headaches qualifies as a medical care expense for purposes of her health care flexible spending account. ...

The cost of an herb may be an expense for medical care if the taxpayer can substantiate that he or she:

  • Has a medical condition (disease, illness or injury);
  • Is purchasing the herb to treat or alleviate the medical condition;
  • And would not have purchased the herb “but for” the medical condition.

Update #1:

Update #2: Rev. Rul. 97-9, 1997-1 CB 77, specifically precludes a medical expense deduction for medical marijuana:

An amount paid to obtain a controlled substance (such as marijuana) for medical purposes, in violation of federal law, is not a deductible expense for medical care under § 213. This holding applies even if the state law requires a prescription of a physician to obtain and use the controlled substance and the taxpayer obtains a prescription.

So the IRS in Info. 2010-0080 either was (1) signalling a retreat from its position in Rev. Rul. 97-9 by not mentioning the federal legality of the substance; (2) implicitly referring only to legal herbs (and hence not covering marijuana).

Update #3:  I am told by an enterprising reporter that the herb in question in Info. 2010-0080 is Petadolex, so it appears that interpretation #2 above controls and the conclusion in Rev. Rul. 97-9 denying a medical expense deduction for medicial marijuana still obtains.

http://taxprof.typepad.com/taxprof_blog/2010/08/dont-bogart-.html

IRS News, Tax | Permalink

TrackBack URL for this entry:

http://www.typepad.com/services/trackback/6a00d8341c4eab53ef013485fa6151970c

Listed below are links to weblogs that reference Don't Bogart That Deduction: Is Medical Marijuana a Medical Expense?:

» What are they smoking? from Roth & Company, P.C.
There's often confusion on the burning edge of the tax law. That's so with the issue of whether you can... [Read More]

Tracked on Aug 4, 2010 5:46:50 AM

» Just Say No: Pot Not Allowed as Medical Expense from taxgirl
While the use of marijuana for medical reasons remains controversial, its becoming more mainstream. Currently, 14 states and DC have legalized medical marijuana in some form (you can check out the details here). Thats pretty interesting i... [Read More]

Tracked on Aug 4, 2010 6:27:35 AM

» Just Say No: Pot Not Allowed as Medical Expense from taxgirl
While the use of marijuana for medical reasons remains controversial, its becoming more mainstream. Currently, 14 states and DC have legalized medical marijuana in some form (you can check out the details here). Thats pretty interesting i... [Read More]

Tracked on Aug 4, 2010 6:27:36 AM

» One toke over the IRS-approved medical tax deduction line from Don't Mess With Taxes
As states and cities struggle to close budget gaps, the possibility of taxing marijuana sold for medicinal purposes has received more attention. But even if you are allowed to purchase the plant to treat a medical ailment, you'll have to do so totally ... [Read More]

Tracked on Aug 4, 2010 8:59:07 AM

Comments

My wife is a big believer in Chinese medicine and takes (uncontrolled) herbal remedies for various things, as prescribed by her practitioner. We have long used an FSA to pay for these, and have never had an issue with it. Now that over-the-counter medications will be excluded starting next year, it is good to have this ruling to clarify the continuing eligibility of prescribed herbal remedies.

Posted by: Kevin | Aug 4, 2010 8:23:09 AM

It's a trap. For tax returns, you need receipts stating who you gave your money to. They then need to declare the income. The tax has merely shifted to someone else.

Score 1 for the IRS.

Posted by: Gunslinger | Aug 4, 2010 12:01:20 PM

So does this mean that say Im a caregiver and I am making hmmm lets say 100k a year I dont have to file taxes on it because its for medical marijuana which the IRS doesnt seem to recognize as a legit buisness.

Posted by: Jason | Aug 9, 2010 11:13:10 AM