New Legal Paper Argues Marijuana Rescheduling Could End IRS Code 280E Enforcement, Including Past Tax Liabilities
- The paper argues that if cannabis is rescheduled to Schedule III, the federal government may lose the authority to enforce IRS Code Section 280E, which currently disallows marijuana businesses from deducting standard business expenses.
- Section 280E applies only to businesses trafficking substances listed in Schedule I or II, so moving marijuana to Schedule III would remove it from the law’s scope and potentially invalidate the enforcement of both current and past 280E tax liabilities.
- The argument is based on the conditional nature of Section 280E, tied to marijuana’s classification under federal drug law, and the statute’s present-tense wording that depends on marijuana's scheduling status without preserving enforcement post-rescheduling.
- If upheld, this interpretation could challenge billions in outstanding federal tax liabilities from marijuana companies, introducing a significant shift in federal marijuana taxation and enforcement policy once cannabis is rescheduled.
A new legal paper being published in the Oklahoma Law Review, shared with The Marijuana Herald ahead of print, argues that if cannabis is moved to Schedule III, the federal government may lose the authority to enforce IRS Code 280E.
The paper was sent to The Marijuana Herald by University of Oklahoma law student Anthony Deininger, who described it as a first-look copy of his forthcoming publication in Oklahoma Law Review. He said the draft has also been submitted to SSRN and is expected to be published later this year.
The paper examines Internal Revenue Code Section 280E and argues that its enforcement would effectively end if marijuana is rescheduled under the Controlled Substances Act.
Section 280E currently prevents marijuana businesses from deducting standard business expenses, often resulting in effective tax rates approaching 70%. The restriction applies to businesses trafficking substances listed in Schedule I or II.
The paper says that if marijuana is moved to Schedule III, it would be removed from the “textual scope of section 280E,” meaning the tax rule would no longer apply moving forward. But the analysis goes further, arguing that rescheduling could also strip the federal government of the ability to collect on older 280E-related liabilities. As the paper states, rescheduling would “remove the enforcement authority necessary to collect on any cannabis-connected section 280E liabilities, including outstanding balances incurred prior to the change in classification.”
The core argument centers on how the law is written. According to the paper, Section 280E is “not as a freestanding tax measure but as a conditional tax disability” tied to marijuana’s current status under federal drug law. In other words, the rule only functions while marijuana remains within Schedule I or II. Once that changes, the paper argues, the authority behind the rule may disappear as well.
The paper also points to the statute’s present-tense wording and the fact that it relies on a classification system that can change over time. Because Congress did not include language preserving enforcement after rescheduling, the author argues that the government’s ability to apply 280E “rises and falls with the scheduling classifications it incorporates.”
If that interpretation holds, it could put billions of dollars in disputed or unpaid federal tax liabilities into question. Some of the nation’s largest marijuana companies have reported major outstanding obligations tied to 280E, even as federal officials continue pursuing collections in court.
The paper has not yet been peer-reviewed, but it is expected to be published in the Oklahoma Law Review later this year.
While courts have not yet ruled directly on this question, the argument adds a new layer to the broader debate over how federal marijuana policy should operate in a post-rescheduling environment.