A group of congressional lawmakers are pressing federal officials to issue “prompt guidance” on tax issues for marijuana businesses in light of the Trump administration’s move to federally reschedule cannabis.
A new letter, led by Reps. Steven Horsford (D-NV and Steve Cohen (D-TN), notes that “state-legal cannabis businesses have been denied ordinary business tax deductions and credits due to Section 280E, which prohibits any such deductions for expenditures related to controlled substances listed in Schedules I and II.”
However, now that cannabis has been partially moved to Schedule III, 280E is “no longer applicable to qualifying state-legal cannabis-related trades or businesses,” the lawmakers wrote to Treasury Secretary Scott Bessent and Internal Revenue Service (IRS) Chief Executive Officer Frank Bisignano on Thursday. “This change materially alters the federal tax framework governing the cannabis industry.”
Under an order issued by Acting Attorney General Todd Blanche last month, marijuana regulated by a state medical cannabis license immediately moved to Schedule III. Marijuana products such as those in state-legal recreational markets remain in Schedule I for now, however, subject to a hearing process set to begin next month to consider broader rescheduling of cannabis.
The new letter says that “unambiguous guidance” is needed in two areas:
- Businesses that operate state-issued cannabis licenses which cover both adult-use (recreational) and medicinal purposes. E.g., one store which sells both adult-use and medicinal cannabis.
- Businesses that operate separate state-issued cannabis licenses for adult-use and medicinal purposes.
“The absence of clear and timely guidance for the cannabis industry will leave taxpayers uncertain as to how they can benefit from the tax code—whether it is the treatment of ordinary and necessary business deductions or accessing of tax credits,” the lawmakers wrote.
They also want Treasury and IRS to “work with federal partners, like the Small Business Administration, to ensure this guidance is widely disseminated.”
The U.S. Department of the Treasury and IRS said last month that they plan to soon issue guidance on tax issues for marijuana businesses stemming from rescheduling, but that hasn’t yet happened.
“While we acknowledge that the Treasury has announced guidance is forthcoming, we urge swift and clear action,” the lawmakers said in the new letter. “Clarifying guidance will promote uniform compliance, reduce potential tax disputes, and support efficient tax administration.”
In addition to Horsford and Cohen, the new letter is signed by Reps. Betty McCollum (D-WA), Eleanor Holmes Norton (D-DC), Rashida Tlaib (D-MI), Jared Huffman (D-CA) and Jesús G. “Chuy” García (D-IL).
“We respectfully urge the IRS to issue guidance to address these and other issues and facilitate an orderly transition under current law,” they said. “The IRS should seek input from the states, and from businesses in the cannabis-sector to ensure the guidance is robust and complete. Additionally, any guidance should promptly be shared with relevant agencies to ensure businesses have access to this timely information.”
Horsford and Cohen separately led a recent letter asking President Donald Trump to free federal marijuana prisoners as a follow-up to rescheduling
In their announcement last month about forthcoming guidance, IRS and Treasury said they “expect DOJ’s action to have significant positive tax consequences for businesses in the medical marijuana industry.”
“Accordingly, rescheduling generally removes section 280E as a bar to claiming deductions and credits for businesses that as a result of the Final Order no longer traffic in Schedule I or II controlled substances under the CSA,” they said.
Because of the way the rescheduling action is being rolled out in phases, state-licensed marijuana companies that serve both the medical and recreational markets may only be able to immediately obtain tax relief for parts of their businesses.
“Guidance is expected to clarify the ways in which, for businesses with multiple activities, section 280E applies only to those activities related to trafficking in Schedule I or II controlled substances (e.g., by apportioning expenses),” the tax agency and Treasury Department said.
Blanche’s rescheduling order for DOJ said he “encourages” the treasury secretary “to consider providing retrospective relief from Section 280E liability for taxable years in which a state licensee operated under a state medical marijuana license.”
But the Treasury and IRS announcement said that, at least for an initial transition rule, “rescheduling generally will be considered to first apply for a business’s full taxable year that includes the effective date of the Final Order, for the business’s activities that do not involve Schedule I or II controlled substances as a result of the Final Order.”
The agencies did not specify when they expect to issue the forthcoming guidance.
