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Cannabis Taxation—Part I—Introducing 280E & The Evolution of the Pro Taxpayer Internal Revenue Code

Florida’s Cannabis News Podcast

Tuesday November 10, 2020

Cannabis Taxation—Part I—Introducing 280E and The Evolution of the Pro Taxpayer Internal Revenue Code.

This week, David introduces Florida’s Cannabis News Podcast’s five part series on cannabis taxation. In this episode we give a 40,000 degree overview of what IRC Section 280E is and discuss the evolution of the United States’ pro-taxpayer approach to the Internal Revenue Code.

Here are the highlights:

Historically, the Internal Revenue Code (“Code”) and U.S. courts applied a taxpayer-friendly approach to determine the deductibility of business expenses. In determining deductibility, the legality of the income source was irrelevant.

But, with the rise of President Richard Nixon’s ‘War on Drugs’ and the enforcement of ‘no tolerance’ drug policies in the 1970s, Congress restricted their taxpayer-friendly approach. In 1981, Congress enacted Section 280E into the Internal Revenue Code, which forbids businesses who traffic Schedule I or II substances, as defined by the Controlled Substances Act, from deducting ordinary business expenses when filing their federal taxes.

Section 280E re-focused deductibility to hinge on the legality of the income source itself.

Section 280E reaches further than the drafters intended, does not satisfy any War on Drugs policy goals, and cripples the legal cannabis industry, one of the fastest growing industries in the United States.

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