Here’s the introduction to their piece
For decades, cannabis, derivatives of cannabis, and connected substances such as hemp and marijuana have been classified as Schedule I narcotics below the 1970 Controlled Substances Act. Federally, the production and sale of marijuana have been and stay illegal, despite the fact that a marijuana enterprise remains obligated to spend federal revenue tax on its taxable revenue below Sec. 61(a).
Sec. 280E limits revenue tax deductions for companies that targeted traffic in controlled substances. The origin of Sec. 280E dates to 1981 with the Tax Court case Edmondson,T.C. Memo. 1981-623. The court decided that a seller of cocaine, amphetamines, and marijuana could deduct most of his price of goods sold (COGS) packaging, telephone, and automobile costs and a portion of his rental expense of his residence, all relating to the seller’s illegal business.
In 1982, Sec. 280E was enacted to reverse the Edmondson decision and deny sellers of Schedule I or II controlled substances the appropriate to deduct enterprise costs. Considering that marijuana is classified as a Schedule I drug, marijuana companies are unable to deduct most ordinary enterprise costs. Nevertheless, COGS is allowable as an adjustment to gross receipts.
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