IRS to Continue Applying 280E Tax on Marijuana
The Internal Revenue Service (IRS) will continue to seek tax payments from marijuana companies that have claimed deductions in anticipation of a possible federal rescheduling decision, according to an official with the agency. Even if the reform is enacted, the IRS would theoretically be empowered to seize assets from cannabis companies that don’t pay their dues.
During a recent conference, IRS Senior Counsel Luke Ortner discussed the potential implications of the Biden administration’s proposal to move marijuana from Schedule I to Schedule III of the Controlled Substances Act (CSA). While this policy change would allow state-licensed cannabis businesses to take federal tax deductions, several major companies have already claimed deductions even as the rulemaking process remains underway.
Ortner clarified that the 280E policy still applies until a final rule is issued, and the agency will “continue to enforce 280E for years prior” to the reform. He also noted that even if rescheduling is implemented, the IRS will aim to recoup any payouts that were requested and granted in contravention of 280E.
Industry stakeholders have made legal arguments in defense of their 280E tax deduction claims, including arguing that the policy shouldn’t apply in instances where businesses’ marijuana activities are wholly intrastate. Ortner acknowledged that certain challenges are playing out in the courts that could determine how the IRS ultimately proceeds in the future.
However, for now, the agency’s position hasn’t changed, and it will aim to recoup any payouts that were requested and granted in contravention of 280E. The IRS also clarified that accountants won’t be punished for assisting state-licensed cannabis businesses with their tax returns, as long as they properly apply 280E.
The official also noted that a Schedule III reclassification could lead to additional enforcement action against companies that fail to pay their taxes. This could include seizing and selling a cannabis business’s assets, including marijuana inventory, to satisfy outstanding tax liabilities. However, it’s unlikely that the IRS would actually seize cannabis products, as they would still be federally prohibited.
Rescheduling is not a given, as President Joe Biden recently acknowledged while touting the administration’s role in directing the review that led to the Schedule III recommendation. The DEA is set to hold an administrative hearing to gain additional input on the proposed reform in December before potentially proceeding to final rulemaking.
In the interim, multiple states have taken steps to provide state-level tax relief to marijuana businesses that are subject to the IRS 280E statute.
