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Cannabis Businesses' Tax Litigation: The Lessons Learned

By Jennifer Benda (July 6, 2018, 3:41 PM EDT) -- Internal Revenue Code Section 280E creates incredibly harsh tax treatment for state legal cannabis companies. Why? During the War on Drugs of the 1980s, the U.S. Congress determined that in addition to punishing drug dealers under the criminal statutes, they would increase their taxes. So, drug dealers are not allowed deductions for ordinary and necessary business expenses in determining their tax liabilities. While the definition of drug dealer has evolved under state law, because federal law has not changed, the 1980s War on Drugs continues through the Internal Revenue Code.[1] To avoid constitutional limitations, Section 280E does allow cannabis businesses to deduct their cost of goods sold.[2] ...

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