The U.S. Court of Appeals for the Tenth Circuit today affirmed a decision of the U.S. Tax Court that section 280E prohibits deductions claimed by the taxpayers as shareholders in a company engaged in selling medical marijuana.
The Tenth Circuit agreed with the taxpayers that the Tax Court erred in determining that they were not entitled to business expense deductions because they had failed to substantiate their expenses at trial. However, the Tenth Circuit affirmed on an alternative ground that the taxpayers had failed to meet their burden of proving the IRS erroneously concluded that the company was unlawfully trafficking in a controlled substance. Thus, the appeals court concluded that section 280E precluded the deduction of the claimed business expenses.
As the Tenth Circuit observed in a footnote:
Taxpayers are understandably frustrated with the loss of their business expense deductions under § 280E. Despite operating in accordance with state law controlling the distribution of medical marijuana, [they] are subject to greater federal law liability than other legitimate state businesses. But state legalization of marijuana cannot overcome federal law.
The case is: Feinberg v. Commissioner, No. 18-9005 (10th Cir. February 26, 2019). Read the Tenth Circuit’s opinion [PDF 202 KB]
© 2020 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.KPMG International Cooperative (“KPMG International”) is a Swiss entity.
Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.
The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.