January 29, 2014 § 1 Comment
Proposed new Text of 26 U.S.C. § 280E, Expenditures in connection with the illegal sale of drugs:
No deduction or credit other than for cost of goods sold and current employee compensation shall be allowed for, and section 263A shall not apply to, any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law and the law of any State in which such trade or business is conducted.
(Added by Pub. L. 97-248, title III, Sec. 351(a), Sept. 3, 1982, 96 Stat. 640.) That’s from http://codes.lp.findlaw.com/uscode/26/A/1/B/IX/280E/notes.
To get the conversation started, here’s a straw-person compromise: allow deduction of salaries – we want to encourage jobs and people making a living. Clarify CGS in the words of the statute for folks in the marijuana community who want to see it in writing. Rather than irritate many worried mothers of America, keep advertising and marketing and display areas nondeductible, so disallow the unicap rules. Beautiful retail space can’t be trained not to appeal to kids; employees can. Draft language to capitalize legal and accounting fees, licenses, and so on.
I don’t have any idea if this draft is a revenue raiser or loser.
Nothing has in the Tax Code has less prestige than a Senate floor amendment (conference reports are the closest competition), for they are thrown together without discussion or vetting. That’s how 280E got into the Code. Its drafting is so unclear that resort to a Committee Report was the only way for taxpayers to be sure that it allows taxpayers them to deduct cost of goods sold.