Recently, a California-based medical cannabis dispensary was denied federal tax deductions for business expenses and charitable contributions. Even though the dispensary is licensed in California and its trade is legal under California law, “trafficking marijuana” is illegal under federal law. In denying the deductions, the U.S. Tax Court referenced IRC Sec. 280E, which prohibits deductions associated with controlled substances, and a 2005 U.S. Supreme Court case (Gonzales v. Raich). The court upheld the tax liability imposed by the IRS. (TC memo: 2024-98)
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