Tax Creativity Keeps Pot Industry Out Of IRS Hot Water

By Matthew Villmer (March 4, 2014, 3:13 PM EST) -- An obscure provision of the Internal Revenue Code that bans business tax deductions for sellers of legal marijuana is shutting down many dispensary businesses throughout the U.S., but tax experts say diversification and cost allocation are the keys to escaping current draconian federal tax policy.

Although the sale of marijuana is legal in several states, it remains illegal under federal law, and Revenue Code 280E bans most deductions and tax credits given to businesses selling Schedule I and II controlled substances, which includes marijuana, under the Controlled Substance Act.

"When potential marijuana dispensary business owners figure out that their effective federal...

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