With the April filing deadline for 2025 tax returns fast approaching, cannabis companies must once again confront the burden of Section 280E of the Internal Revenue Code ("Section 280E"). Despite significant developments over the past year — including a landmark executive order from President Trump and new litigation in which the IRS has, for the first time, laid out its substantive legal reasoning for maintaining that state legal cannabis remains "within the meaning" of Section 280E — the analysis for taxpayers remains much the same.
However, whether substantively or psychologically, these recent developments add to the calculus of how taxpayers should confront Section 280E. Below, we summarize the key developments cannabis taxpayers should be aware of as they prepare their 2025 returns.
As discussed in previous posts, Section 280E provides that "[n]o 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."
Because cannabis currently remains listed as a Schedule I controlled substance under the Controlled Substances Act ("CSA"), the IRS has consistently maintained that Section 280E applies to state-licensed cannabis businesses, dramatically increasing their effective tax rates.
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