By Robert W. Wood
Forbes
If you’d like to discuss medical marijuana, contact Ryan Hurley, head of the Rose Law Group Medical Marijuana Dept., rhurley@roselawgroup.com
Tax law is famously quirky, but this may take the cake. Eighteen states and the District of Columbia have legalized medical marijuana. Massachusetts was most recent. Colorado and Washington have even legalized recreational marijuana. See Colorado, Washington First States to Legalize Recreational Pot.
But even legal dispensaries are still labeled as drug traffickers under federal law. Section 280E of the tax code denies tax deductions for any business trafficking in controlled substances. The IRS says it must enforce Section 280E. Yet the U.S. Tax Court has opened the door a crack by allowing dispensaries to deduct other expenses distinct from dispensing marijuana. See Californians Helping to Alleviate Medical Problems Inc. v. Commissioner.
The end-run works like this. If a dispensary sells marijuana and operates the separate business of care-giving, the care-giving expenses are deductible. Some expenses might relate to both. If only 10% of the premises are used to dispense marijuana, 90% of the rent is deductible. But good record-keeping is essential. See Medical Marijuana Dispensaries Persist Despite Tax Obstacles.
