Voters Say Yes to Marijuana, IRS Says No

Forbes:  Voters Say Yes to Marijuana, IRS Says No, by Robert Wood:

A total of 18 states and the District of Columbia have legalized medical marijuana. Massachusetts just came on line after the November 6, 2012 vote. Colorado and Washington just went futher to legalize recreational use too. See Colorado, Washington First States to Legalize Recreational Pot.

But can a legal dispensary operate like a “legitimate” business? Amazingly, they can’t and are still labeled as drug traffickers. ... no matter how “legal” the states make it the IRS is federal and that means trouble. American businesses pay tax on their net not their gross income and business expenses are as American as apple pie. But Section 280E of the tax code denies deductions for any business trafficking in controlled substances. This black letter rule to stop drug dealer tax deductions also covers medical marijuana since federal law still classifies it as a controlled substance.

Prior TaxProf Blog coverage:

• Tax Code May Kill Medical Marijuana Industry (Oct. 5, 2011)
• IRS Bogarts Medical Marijuana Pharmacy's Deductions, Drives Founder Into Bankruptcy (July 15, 2012)
• Tax Court: § 280E Precludes Deductions (But Not Cost of Goods Sold) for Medical Marijuana Supplier Who Underreported Gross Receipts (Aug. 3, 2012)
• Gangs, Ganjapreneurs, or Government: Marijuana Revenue Up for Grabs (Nov. 1, 2012)