Code Sec. 280E Not Applicable to Marijuana, IR-2024-177

The IRS reminded taxpayers that marijuana will remains a Schedule I controlled substance till a federal rule is published. Businesses that sell marijuana, even legalized sales will not be entitled to receive a refund or payment under Code Sec. 280E. Code Sec. 280E disallows all deductions or credits for any amount paid or incurred in carrying on any trade or business that consists of illegally trafficking in a Schedule I or II controlled substance within the meaning of the federal Controlled Substances Act.

Although the Justice Department had published a notice of proposed rule-making with the Federal Register to initiate a formal process to consider rescheduling marijuana under the Controlled Substances Act, no final rule has been published to this date. Marijuana remains a Schedule I controlled substance and is therefore, subject to the limitations of Code Sec. 280E. Despite there being no change in the legislation, taxpayers are filing amended tax returns claiming the benefit under this section.