Lawmakers Urge IRS and Treasury to Clarify Marijuana Tax Rules Following Rescheduling Order
- The letter, led by Representatives Steven Horsford and Steve Cohen, urges the Treasury and IRS to clarify how federal tax rules apply to marijuana businesses following the reclassification of certain medical marijuana products to Schedule III.
- Lawmakers argue that since qualifying marijuana products are now Schedule III, Section 280E—which restricts business deductions for Schedule I or II substance businesses—should no longer apply to these marijuana businesses.
- The letter requests clear IRS guidance for businesses with state licenses for both adult-use and medical marijuana to ensure proper tax deductions, credits, and compliance, reducing tax disputes and promoting uniformity.
- The lawmakers also urge coordination between Treasury, IRS, and other federal agencies to widely share guidance with affected businesses, following the DOJ’s recent rescheduling actions and upcoming hearings on broader marijuana rescheduling.
The letter, led by U.S. Representatives Steven Horsford (D-NV) and Steve Cohen (D-TN), was sent May 28 to Treasury Secretary Scott Bessent and IRS Chief Executive Officer Frank Bisignano. It urges the agencies to clarify how federal income tax rules apply to qualifying marijuana businesses now that certain state-regulated medical marijuana products and FDA-approved cannabis medications have been moved to Schedule III.
For years, marijuana businesses have been barred from taking standard business deductions under Section 280E of the federal tax code, which applies to businesses trafficking in Schedule I or II substances. The lawmakers say that, because qualifying marijuana products have now been placed in Schedule III, 280E no longer applies to qualifying state-legal marijuana-related businesses.
“This change materially alters the federal tax framework governing the cannabis industry,” the letter states.
The lawmakers said clear guidance is needed to help businesses understand how they can claim ordinary and necessary business deductions, access tax credits and comply with federal tax rules without unnecessary disputes.
The letter specifically asks the IRS to address businesses operating state-issued licenses that cover both adult-use and medical marijuana, such as a single store selling both types of products. It also asks for guidance for businesses that hold separate state-issued licenses for adult-use and medical operations.
“Clarifying guidance will promote uniform compliance, reduce potential tax disputes, and support efficient tax administration,” the lawmakers wrote.
In addition to Horsford and Cohen, the letter was signed by U.S. Representatives Betty McCollum (D-MN), Eleanor Holmes Norton (D-DC), Rashida Tlaib (D-MI), Jared Huffman (D-CA) and Jesús G. “Chuy” García (D-IL).
The letter follows the Department of Justice’s recent order moving FDA-approved cannabis medications and state-licensed medical marijuana products to Schedule III, while also setting a June 29 hearing to consider broader marijuana rescheduling.
The lawmakers also called on Treasury and IRS officials to work with federal partners, including the Small Business Administration, to make sure any guidance is widely shared with businesses affected by the change.