The Tax Court has tried a few cases involving taxpayers that sell medical marijuana. The Tax Court held that the taxpayer trafficked in medical marijuana, which is a Schedule I controlled substance, and that §280E disallows all deductions attributable to that trade or business.
In 2007, Californians Helping to Alleviate Medical Problems, Inc, is one of the most important tax cases related to medical marijuana.
Here’s some interesting articles on the CHAMP case and key take-aways:
In Olive versus Commissioner, a cannabis operator filed taxes for his dispensary the Vapor Room in 2004 and 2005. The Vapor Room provided its patrons a place where they could socialize, purchase medical marijuana, and consume it using the Vapor Room’s vaporizers. The Vapor Room was set up like a community center and didn’t charge it’s patrons for anything (coffee, games, etc) beyond the medical cannabis.
The Vapor room gets audited, and the IRS assessed tax penalties that were pretty hefty due to 280E and precluded the Vapor Room from deducting any amount of ordinary or necessary business expenses (which they had done).
Understanding these cases and working with a CPA to do a 280E strategy and analysis is imperative for your cannabis business!