The IRS has released IR-2024-2024-177[1] reminding taxpayers that marijuana remains a Schedule I substance for now, and that IRC §280E continues to apply until such time as the drug is removed from that schedule when and if the Justice Department finalizes the proposed rule. The news release states that:

Until a final federal rule is published, the Internal Revenue Service today reminded taxpayers that marijuana remains a Schedule I controlled substance and is subject to the limitations of Internal Revenue Code.[2]

The IRS notes that they are receiving improper claims for refund after the news broke about the Department of Justice proposing to move the substance off Schedule I.

The law with respect to the schedule or classification of marijuana has not changed. Taxpayers seeking a refund of taxes paid related to Internal Revenue Code Section 280E by filing amended returns are not entitled to a refund or payment.

Although the law has not changed, some taxpayers are filing amended returns. The grounds for filing such claims vary, but these claims are not valid. The IRS is taking steps to address these claims.[3]

The IRS points out that prior to the publication of a final rule, the provisions of IRC §280E will continue to apply to cannabis businesses.

On May 21, 2024, the Justice Department published a notice of proposed rulemaking with the Federal Register to initiate a formal rulemaking process to consider rescheduling marijuana under the Controlled Substances Act. Until a final rule is published, marijuana remains a Schedule I controlled substance and is subject to the limitations of Internal Revenue Code Section 280E.[4]

The release also states the impact of these limitations until such time as a final rule rescheduling the substance is issued.

Section 280E disallows all deductions or credits for any amount paid or incurred in carrying on any trade or business that consists of illegally trafficking in a Schedule I or II controlled substance within the meaning of the federal Controlled Substances Act.

This applies to businesses that sell marijuana, even if they operate in states that have legalized the sale of marijuana. Section 280E does not, however, prohibit a participant in the marijuana industry from reducing its gross receipts by its properly calculated cost of goods sold to determine its gross income.[5]

[1] IRS News Release IR-2024-177, June 28, 2024, https://www.irs.gov/newsroom/irs-marijuana-remains-a-schedule-i-controlled-substance-internal-revenue-code-section-280e-still-applies

[2] IRS News Release IR-2024-177, June 28, 2024

[3] IRS News Release IR-2024-177, June 28, 2024

[4] IRS News Release IR-2024-177, June 28, 2024

[5] IRS News Release IR-2024-177, June 28, 202