Here’s the introduction to their piece

For decades, cannabis, derivatives of cannabis, and related substances such as hemp and marijuana were classified as Schedule I narcotics under the 1970 Controlled Substances Act. Federally, the production and sale of marijuana have been and remain illegal, although a marijuana business remains obligated to pay federal income tax on its taxable income under Sec. 61(a).

Sec. 280E limits income tax deductions for businesses that 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 cost of goods sold (COGS); packaging, phone, and automobile expenses; 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 right to deduct business expenses. Since marijuana is classified as a Schedule I drug, marijuana businesses are unable to deduct most ordinary business expenses. However, COGS is allowable as an adjustment to gross receipts.

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