In Response to A Number of Congressional Inquiries, IRS Clarifies No Deductions Allowed for Taxpayers Who Sell Medical Marijuana, Even If State Law Allows Such Sales

In response to inquiries from six members of Congress, the IRS reiterated that no deductions are allowed to taxpayers who are in the business of selling medical marijuana (IRS Information Letter 2011-0005).  The information letter noted that IRC §280E “disallows deductions incurred in the trade or business of trafficking in controlled substances that federal law or the law of any state in which the taxpayer conducts the business prohibits.”

While state laws in a number of states allow for the sale of medical marijuana, the IRS notes that the federal Controlled Substances Act covers marijuana and citing the US Supreme Court’s decision in U.S. v. Oakland Cannabis Buyers’ Co-op., 532 U.S. 483 (2001) notes that no medical necessity exception exists under federal law.  Thus the IRS concludes that unless Congress changes the law, no deduction would be allowed for medical marijuana businesses.

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