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IRS affirms marijuana’s Schedule I status and Section 280E application

The Internal Revenue Service has affirmed that marijuana remains classified as a Schedule I controlled substance under federal law. Despite marijuana being legalized in several states, marijuana businesses are still restricted by Internal Revenue Code Section 280E.

Key Takeaways

  • The law regarding the classification of marijuana has not changed. It continues to be a Schedule I controlled substance, meaning it is considered illegal under federal law.
  • Although some taxpayers have filed amended returns to claim refunds for taxes paid under Section 280E, the IRS has clarified that these refund requests are invalid and taxpayers are not eligible for refunds.
  • Section 280E disallows all deductions or credits for expenses incurred in the business of illegally trafficking Schedule I or II controlled substances. This includes marijuana businesses, even if they operate legally under state law. However, these businesses can still reduce their gross receipts by the cost of goods sold to determine their gross income.
  • On May 21, 2024, the Justice Department initiated a formal rulemaking process to consider rescheduling marijuana under the Controlled Substances Act. Until a final rule is published, marijuana remains under the current classification, and Section 280E still applies.

While the landscape of marijuana legalization continues to evolve at the state level, cannabis businesses must understand and comply with federal regulations. For further guidance and additional resources related to the cannabis industry, please visit IRS.gov.

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