A Section 199A "Deduction" For Cannabis Businesses?

Section 280E of the Internal Revenue Code prohibits cannabis businesses from taking any tax deductions or credits. And the IRS aggressively enforces section 280E against the cannabis industry. Section 199A of the Internal Revenue Code allows a 20% deduction for passthrough businesses for qualified business income. But this deduction is really a rate equalization - it is meant to equalize the tax rates between C corporations and passthrough businesses. Because of this and other reasons, section 280E may not fully limit section 199A. And an IRS attorney recently publicly stated that the IRS won't automatically seek to disallow section 199A deductions for cannabis businesses. This statement is not binding on the IRS, but it is good news for the cannabis industry.

Kim & Rosado LLP
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