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Key Takeaways from the US Tax Court’s Cannabis Business Deduction Decision

Key Takeaways from the US Tax Court’s Cannabis Business Deduction Decision

Author: Scarinci HollenbeckDate: January 8, 2020

The U.S. Tax Court recently ruled that because marijuana remains illegal under federal law cannabis businesses are prohibited from deducting business expenses pursuant to Section 280E of the Internal Revenue Code. According to the court, the provision is neither a penalty nor an unconstitutionally excessive fine.

While the Tax Court ultimately rejected the cannabis industry’s challenges to Section 280E in Northern California Small Business Assistants Inc. v. Commissioner of Internal Revenue, it is important to note that the decision was not unanimous. In a partial dissent, Judge David Gustafson argued that Section 280E is unconstitutional under the 16th Amendment. Judge Elizabeth A. Copeland also issued a partial dissent, rejecting the majority’s conclusion that Section 280E is not a penalty.

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