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IRS warns marijuana operators about the payment of 280E taxes: this is the deadline to pay them

IRS warns marijuana businesses to meet 280E tax obligations despite rescheduling efforts; tax deductions remain prohibited for cannabis under current Schedule I classification.

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The Internal Revenue Service (IRS) is warning marijuana businesses and operators to continue paying what they owe in taxes under the 280E tax code. This is despite the government’s effort to reduce the amount marijuana operators pay in taxes by moving cannabis to a less restrictive drug category. 

The 280E tax code was established in the 1980s, in response to a cocaine dealer claiming standard business deductions for drug proceeds. The 280E rule closed this tax loophole to all drugs classified as either Schedule I or Schedule II under the US Controlled Substances Act.

“The law with respect to the schedule or classification of marijuana has not changed”, said the Internal Revenue Service in a news release on Friday following constant moves by taxpayers in the cannabis industry. 

Business operators seek refund of taxes paid

Although the law remains unchanged, business operators in the industry keep seeking a refund of taxes paid related to Section 280E by filing amended returns. According to the IRS, “these claims are not valid.” 

The Internal Revenue Code Section 280E prohibits any deductions or credits incurred from trading or transacting business that involves illegal trafficking of marijuana, or any Schedule I or II controlled substance. This also applies to businesses that operate in states that have legalized sale of marijuana. 

A spokesperson for the US Cannabis Council said on Tuesday, “The IRS release is a powerful reminder that 280E remains a major impediment to profitability in the regulated cannabis industry.” 

The statement by the IRS has not stopped the legal efforts against 280E, especially by state-legal cannabis operators. According to the spokesperson, “the only sure way to end the tax penalty … [is] to move cannabis down to Schedule III.” 

Spokespeople for Verano Holdings Corp. (VRNOF), Curaleaf Holdings Inc. (CURLF), Trulieve Cannabis Corp. (TCNNF), Verano Holdings Corp. (VRNOF) and Cresco Labs Inc. (CRLBF)—four of the largest U.S. cannabis companies—did not comment on the IRS’s statement.

The Federal Government’s effort to reschedule cannabis

The Biden administration has made efforts to reschedule marijuana from Schedule I to Schedule III of the Controlled Substances Act. 

The administration first made this recommendation in October 2022. On May 21, 2024, US Attorney General Merrick Garland of the Department of Justice published a notice of proposed rulemaking with the Federal Register to initiate a formal rulemaking process to consider rescheduling marijuana under the Controlled Substances Act. 

“Until a final rule is published, marijuana remains a Schedule I controlled substance and is subject to the limitations of Internal Revenue Code Section 280E”, the IRS said in the statement released on Friday. 

The marijuana industry has been awaiting word since then. 

Deadline for payment of 280E tax 

The 280E tax code is not a separate tax paid by marijuana operators, instead, it is a tax law (or limitations) on tax deductions for businesses dealing with Schedule I and II controlled substances. 

Hence, there is no specific deadline set for marijuana operators to file income tax. The deadline for 280E taxes typically aligns with the general tax filing deadline of April 15, set by the IRS for businesses. 

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