Sponsors (13)
The bill clarifies and standardizes how federal tax law disallows deductions for activities involving controlled substances—reducing audit uncertainty for the IRS and taxpayers—but it preserves the deduction ban (raising costs for state-legal cannabis businesses and consumers) and provides no retroactive tax relief.
Taxpayers operating businesses involving federally illegal drugs (including state-legal marijuana businesses), along with the IRS and tax courts, get clearer statutory rules about which expenses are disallowed, reducing audit uncertainty and inconsistent rulings.
Businesses in state-legal marijuana markets remain barred from claiming federal tax deductions for ordinary business expenses, raising their federal tax liabilities, reducing profitability, likely increasing consumer prices, and discouraging new market entry.
The change is prospective only, so past taxpayers who paid higher federal taxes under prior interpretations cannot seek refunds for earlier years.
Based on analysis of 2 sections of legislative text.
Adds an explicit prohibition in IRC §280E against deductions for amounts paid or incurred in marijuana trafficking, effective for post-enactment amounts.
Official title: To amend the Internal Revenue Code of 1986 to maintain the prohibition on allowing any deduction or credit associated with a trade or business involved in trafficking marijuana.
Introduced February 21, 2025 by Jodey Cook Arrington · Last progress February 21, 2025
Changes to the tax code bar marijuana businesses from claiming business deductions. The bill amends Internal Revenue Code section 280E to single out marijuana (as defined in federal law) and explicitly deny deductions for amounts paid or incurred in businesses trafficking in marijuana, with the change effective for amounts paid or incurred after enactment in taxable years ending after that date. The result is a narrower federal tax treatment: marijuana businesses cannot reduce taxable income through ordinary business deductions, increasing their federal tax liability relative to other legal businesses.