IRS warns cannabis operators that 280E taxes still must be paid

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The IRS is reminding marijuana companies that taxes under Section 280E of the Internal Revenue Code still must be paid because of the drug’s Schedule 1 status.

“Taxpayers seeking a refund of taxes paid related to Internal Revenue Code Section 280E by filing amended returns are not entitled to a refund or payment,” the agency said Friday in a post on its website.

Section 280E prevents marijuana operators from deducting typical business expenses, such as payroll and marketing, on federal tax returns.

Although the law has not changed, some taxpayers are filing amended returns, prompting the IRS’ notification.

“The grounds for filing such claims vary, but these claims are not valid,” the IRS said.

If the Biden administration’s October 2022 recommendation to move marijuana from Schedule 1 to Schedule 3 of the Controlled Substances Act is cemented through a final rule, the issue of 280E taxation would likely be eliminated.

U.S. Attorney General Merrick Garland followed up this past May by formally proposing moving marijuana to Schedule 3.

The monumental federal policy shift followed an August 2023 recommendation by the Department of Health and Human Services that marijuana be reclassified from Schedule 1 to Schedule 3.

The marijuana industry has been awaiting word on rescheduling since May 21, when the DEA published its formal proposal in the Federal Register.

Publication of that formal proposal launched a 62-day public comment period, one of the steps in the federal rulemaking process.