IRS’ Continued War with Medical Marijuana Dispensaries

The IRS disallowed Section 162 ordinary and necessary business deductions to a medical marijuana dispensary authorized under California state law.  Under section 280E, businesses deductions are disallowed when the taxpayer is engaged in the trafficking of controlled substances.  Even if legal under state law, the court disallowed the deductions because the activity is illegal under federal law, which is contemplated by Section 280E.  Olive V. Commissioner, 139 TC 2, August 2, 2012.