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Conflicted on Cannabis: The DOJ and IRS’ Opposing Rules for Businesses

Ryan Allway

July 20th, 2015

Policy, Top News

The U.S. Department of Justice (“DOJ”) has insisted that marijuana businesses may exist in states where they are legal, but just across the street, the Internal Revenue Service (“IRS”) is telling those businesses that they are illegal drug-trafficking operations ineligible for the benefits that any other corporation in America enjoys.

These dynamics have presented real problems for a growing number of marijuana businesses. For instance, the IRS doesn’t allow marijuana businesses to deduct any of their business expenses, since they are operating illegal businesses, which means they must pay taxes on the full amount of revenue they earn rather than their net revenue. These dynamics can get very expensive and are pushing some businesses close to bankruptcy.

While a handful of challenges have made it to the courts, Section 280E of the tax code is very clear in limiting businesses from deducting business expenses when they “consist of trafficking in controlled substances”. The Controlled Substances Act also very clearly labels marijuana as a controlled substance that’s illegal for sale, use and distribution. Combined, these two laws make these cases open-and-shut on the part of judges.

The only arguments that have been successful were those where marijuana businesses have demonstrated multiple sources of income. In that case, the businesses were permitted to expense some items that were unrelated to the sale of the controlled substance, such as consulting services or the sale of legal ancillary products. The IRS has been very strict in these regards, however, prompting a number of lawsuits.

These court cases underscore the need for a consistent federal framework for marijuana, rather than the patchwork of state-wide legalizations. Without these rules in place, there will likely be an ongoing number of challenges to these laws over time.

This article was published by CFN Enterprises Inc. (OTCQB: CNFN), owner and operator of CFN Media, the industry’s leading agency and digital financial media network dedicated to the burgeoning CBD and legal cannabis industries. Call +1 (833) 420-CNFN for more information.

About Ryan Allway

Mr. Allway has over a decade of experience in the financial markets as both a private investor and financial journalist. He has been actively involved in the cannabis industry since its inception, covering public and private companies.

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About CFN Media Group

CFN Enterprises Inc. (OTCQB: CNFN) owns and operates CFN Media Group, the premier agency and financial media network reaching executives, entrepreneurs and consumers worldwide. Through its proprietary content creation, video library, and distribution via www.CannabisFN.com, CFN has built an extensive database of cannabis interest, assisting many of the world’s largest cannabis firms and CBD brands to build awareness and thrive. For more information, please visit www.cfnenterprisesinc.com.

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