US Tax Court nixes non-marijuana deductions by medical MJ company

cannabis taxes

A U.S. Tax Court judge asserted in a recently released decision that the owner of a Colorado medical marijuana business wasn’t entitled to take business deductions for her expenses in selling non-cannabis accessory merchandise such as pipes and papers.

The decision against the owner of the defunct Altermeds in Louisville, Colorado, is another shot across the bow of companies in marijuana-legal states seeking to be on a level tax playing field with other kinds of enterprises.

Alterman’s attorney, Henry Wykowski, told Marijuana Business Daily on Friday that the memorandum decision “only applies to this case and this taxpayer. It does not set a precedent.

“Nevertheless, it’s a disappointing case and illustrative of the difficulties the industry faces with many – but not all – of the judges in tax court.”

At issue is Section 280E of the U.S. Tax Code, which bans businesses trafficking in controlled substances from taking the same deductions and credits enjoyed by other businesses.

Wykowski noted that Tax Court Judge Richard Morrison in his opinion acknowledged the CHAMP case, which allowed caregiving expenses to be deducted, or treated differently than expenses associated with the sale of medical marijuana.

“The judge then ignored (the CHAMP case) completely by saying he found that even though (Altermeds) was selling items not covered by 280E, he considered it a single business and thus disallowed all the expenses,” he said.

In the CHAMP case, however, counseling and care-giving services were the primary business. With Altermeds, non-marijuana merchandise was a small percentage of the company’s sales.

The IRS claimed that Altermeds’ owner and her husband, who filed a joint return, owe a total of $391,242 in back taxes from 2010 and 2011, plus $78,248 in penalties.

Wykowski said he will examine the decision in more detail to determine whether to appeal.

The San Francisco attorney also is involved in a separate U.S. Tax Court case over whether the 280E provision should not apply to state-licensed marijuana businesses.

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