Tax forms

Tax troubles for cannabis industry: Why the pot-punitive IRS Code 280E isn’t going anywhere

We’re nearly three years into legal adult-use pot sales in Colorado, and IRS code 280E is still taking its toll on legal cannabis businesses.

Adopted about 30 years ago, 280E disallows credits and deductions for income generated from the sale of controlled substances.

To a legal cannabis business, these taxes can amount to significant portions — if not all — of their net income, says marijuana tax attorney James Thorburn.

Simply put: “Whatever you make, the government’s gonna take,” Thorburn says, adding that he believes the IRS is becoming more aggressive in enforcing 280E.

The official position of the Internal Revenue Service is that its auditors are enforcing the tax code, Thorburn says. However, he believes there are other forces at play.

“Of course this enforcement is taking the most aggressive approach possible with 280E, to minimize the amount of income that the dispensaries can make on their shops,” he says.

Thorburn expresses concern that marijuana businesses are being disproportionately targeted via the application of the code.

“It’s not being applied against any other industry that we know of, at this time,” he says. “It’s possible, and the IRS has even alluded to the idea that it could be applied against the pharmaceutical industry. But it certainly has not, at this time.”

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