In a recent response filed by the IRS to the U.S. Tax Court in the case of Jabari v. Commissioner where I was vigorously cross examined on the witness stand by the IRS, the attorneys for the Service noted that I had correctly applied Internal Revenue Code section 280E on the Petitioners 2010 and 2011 tax returns. It was also noted by the IRS attorneys that I had encouraged the taxpayer to timely file their tax returns.
Another 280E case bought before The United States Court of Appeals for the Ninth Circuit did not go well for the petitioner, Canna Care, a California medical marijuana dispensary. The upshot is the second highest court in the land would not overturn Congress on this issue.
The three-judge panel noted:
- Congress has the clear authority to deny tax deductions.
- Since 280E was enacted in 1982, anyone getting into the cannabis industry was and is on notice that they cannot take deductions other than Cost of Goods Sold.
- Congress is the appropriate branch of government to address 280E
An issue The Court of Appeals did not rule on, leaving it open for a future case, perhaps to be heard by the U.S. Supreme Court, is whether IRC 280E is unconstitutional.
This argument could take years to be heard. For several years, Bridge West CPAs and Consultants, LLC has encouraged our clients to file protective claim tax returns. Protective claim tax returns are a second tax return filed with the IRS for each year deductions are denied under 280E. This keeps the statute of limitations open, normally three years, but only with respect the calculation of deductions denied under 280E.
In addition to assisting with the filing of protective claims returns, Bridge West has strategies to minimize deductions lost by 280E that have been tested and prevailed in IRS audits.
Please feel free to contact us at 303-651-0304 or http://bridgewestcpas.com/