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The Taxation of Legal Cannabis Part 2 – Cost of Goods Sold

New Cannabis Ventures

In 1982, Congress added section 280E to the Code to punish drug dealers.[2] Congress enacted section 280E largely in response to a Tax Court ruling.[3] In Edmonson v. Commissioner, the Tax Court allowed a drug dealer to deduct his expense associated with selling various drugs.[4] The court relied on section 162[5] to justify its ruling.[6] The taxpayer at issue sold amphetamines, cocaine, and marijuana.[7] The court allowed the taxpayer to deduct, among others, cost of goods sold (“COGS”) and telephone and automobile expenses as ordinary and necessary business expenses without reference to the illegal nature of the taxpayer’s business.[8]Responding to the case, the Senate Finance Committee stated that changing the law was necessary to comport with the “sharply defined public policy against drug dealing.”[9]

Originally published in New Cannabis Ventures, December 15, 2015.

To read the full article, click here.

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