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Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
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Experience:  15years with H & R Block. Divisional leader, Instructor
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What form do file a medical marijuana business on for a sole

Resolved Question:

What form do file a medical marijuana business on for a sole proprietor? Schedule C or F?
Submitted: 3 years ago.
Category: Tax
Expert:  Robin D. replied 3 years ago.

Robin D :

Hello and thank you for using Just Answer

Robin D :

It would be on a C if you are dispenseing.

Robin D :

26 U.S.C. § 280E : US Code - Section 280E: Expenditures in connection with the illegal sale of drugs

Customer:

I am new at this so please forgive my slow response. I thought it would be a C if dispensing. This person does a little growing.

Robin D :

No deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any State in which such trade or business is conducted.

Robin D :

I understand. The income should go on the Schedule C but I had to advise on the above IRC 280

Robin D :

What it seems to state is that the income better be accounted for but no expenses

Robin D :

You are my first so allow me to continue research

Robin D :

Luigi Zamarra, CPA is the Chief Financial Officer of Harborside Health Center . Mr. Zamarra has written an interesting article entitled “Medical Cannabis Dispensaries: Minimizing the Cost of IRC Section 280E” . The article explains how a medical marijuana business that is legal under state law can allocate its expenses between deductible and nondeductible expenses so as to comply.

Robin D :

Is this your first year in this business?

Customer:

Yes

Robin D :

I would advise you look at the CPA's article then. As a preparer I had to advise on the IRC280 because that is pretty cut and dry. Federal is not required to go by state in tax issues. The same problem is for same sex couples that file married in their state but cannot in the federal. State law cannot trump federal on federal stuff either.

Customer:

Sorry I got stuck on the phone.

Robin D :

From a recent case: respondent concedes that the disallowance of sec. 280E does not apply to costs of goods sold, a concession that is consistent with the caselaw on that subject and the legislative history underlying sec. 280E. See Peyton v. Commissioner, T.C. Memo. 2003-146; Franklin v. Commissioner, T.C. Memo. 1993-184; Vasta v. Commissioner, T.C. Memo. 1989-531; see also S. Rept. 97-494 (Vol. 1), at 309 (1982).*

interpretation of this case and applying it to a situation involving a medical marjjuana dispensary, it would seem that the operating expenses,i.e. rent, utilities, etc, would not be deductible but the actual cost of purchasing the marijuana, Cost of Goods Sold, would be deductible.

Robin D :

Then would they wwant you seller list?

Customer:

I don't understand your last question. "Then would they want you seller list?"

Customer:

How do I get the article you have stated above. When I click on the link, it says it does not exist.

Robin D :

Attempt at humor. If they only allow the cost of goods sold to be used to reduce the income would that open the door to find out who sold the goods to you.

Robin D :

CA has addressed this issue I am looking now to see if Montana has issued rulings as well.

Customer:

OK, I get your question now. MT passed to legalize Medical Marijuana by the voters.

Robin D :

U.S. Tax Court ruling says marijuana dispensaries can legally deduct expenses associated with all activities except dispensing marijuana.


This case disallowed expenses of selling marijuana, but ruled the dispensary was actually also engaged in the separate business of caregiving. All those expenses were OK. It turned out only about 10% of the premises were used to dispense marijuana, making most of the rent deductible.


If a dispensary is only selling marijuana, you might think all deductions would be verboten. But many argue that much of the work done there is counseling patients, education and advocacy.

Robin D :

I still say, do the Schedule C and take the expense for cost of goods sold. If you can prove that more than just the sal eof the product is being conducted the prorate the expenses.

Customer:

Wow, I never thought this would be so complicated!

Robin D :

I have been waiting for a chance to look into this for real.

Robin D :

THANK YOU

Customer:

Thank you. How do I connect to you in the future if I have more questions?

Robin D :

You can just come back here or ask for me when you post your question. You can come back to this one even after you click ACCEPT

Customer:

I ask for Robin D?

Robin D :

Yes you do

Customer:

Thank you!

Robin D :

You are welcome

Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 7872
Experience: 15years with H & R Block. Divisional leader, Instructor
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Robin D.
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15years with H & R Block. Divisional leader, Instructor