American University Washington College of Law Professor Benjamin Leff thinks there is a way that medical marijuana dispensaries in states that have legalized medical marijuana can avoid the application of Internal Revenue Code Section 2080E that causes taxpayers to pay extraordinarily high federal income taxes. Professor Leff wrote an article in Slate called “How legal marijuana sellers can beat a draconian tax” in which he states:
“‘The federal tax situation is the biggest threat to businesses and could push the entire industry underground,’ . . . . sellers of controlled substances—in other words, drugs, including marijuana—are not permitted to deduct any ordinary business expenses other than the cost of the goods they are selling. That’s because of section 280E of the federal tax code . . . . I teach tax law, and I have a solution: Marijuana sellers should operate as nonprofit ‘social welfare organizations’.”
I am not a professor of tax law, but I do hold a masters in law degree (LL.M.) in income tax from New York University School of Law and have studied and written about Code Section 280E. My opinion is that the IRS and the federal courts are not going to allow taxpayers to violate federal criminal law (growing, possessing and selling marijuana) and avoid paying federal income taxes or the application of Code Section 280E.