TerrAscend Now Has Until September 18 to Respond to Federal 280E Lawsuit Seeking Return of $8.4 Million Marijuana Tax Refund
- TerrAscend USA Inc. and its subsidiaries have until September 18 to respond to a federal lawsuit seeking the return of over $8.3 million in tax refunds related to their challenge of Section 280E of the federal tax code.
- The lawsuit, filed by the Department of Justice on May 18, alleges that TerrAscend received an erroneous refund after amending its 2020 tax return to claim $64.6 million in deductions, which the IRS says are prohibited under Section 280E.
- TerrAscend intends to vigorously defend its position, believing it has substantive defenses and currently does not consider a loss probable, following communication from the Justice Department seeking repayment including interest.
- The case could set a precedent for other marijuana companies challenging Section 280E, as it is one of the first major federal court tests of these tax refund strategies amid evolving federal marijuana regulations.
Marijuana company TerrAscend now has until September 18 to respond to a federal lawsuit seeking the return of more than $8.3 million in tax refunds tied to the company’s challenge to Section 280E of the federal tax code.
According to an updated federal court docket, TerrAscend USA Inc. and its subsidiaries were served with the lawsuit in late August, establishing a September 18 deadline to answer the complaint or otherwise respond. The case, United States v. TerrAscend USA, Inc. & Subsidiaries, is pending in the U.S. District Court for the District of New Jersey.
The September deadline could produce TerrAscend’s first substantive court filing explaining how it intends to defend its position. The company could file an answer responding to the government’s allegations or seek dismissal of some or all of the case through a motion.
The Department of Justice filed the lawsuit on May 18 on behalf of the federal government, alleging that TerrAscend received an erroneous refund after amending its federal income tax return for 2020.
TerrAscend originally reported no business deductions on its 2020 return but later amended the filing to claim approximately $64.6 million in deductions. The Internal Revenue Service subsequently issued the company a refund of approximately $8.36 million.
The federal government argues those deductions were prohibited by Section 280E, which generally prevents businesses trafficking in Schedule I or Schedule II controlled substances from deducting ordinary business expenses.
TerrAscend has indicated that it intends to fight the government’s effort. In its most recent quarterly filing, the company said the Justice Department initially contacted it on April 6 seeking repayment of approximately $9.53 million, including an estimated $1.17 million in interest.
The company said it “believes it has substantive defenses to the assertions raised” and intends to “vigorously defend its position.” TerrAscend also said that, based on information available to it and consultation with outside legal and tax advisers, it does not currently consider a loss in the case probable.
The dispute could have implications beyond TerrAscend. Several large marijuana companies have challenged the application of 280E in recent years, including by filing amended tax returns seeking refunds for taxes previously paid.
The IRS has maintained that marijuana businesses were not entitled to refunds based on such amended returns and said in 2024 that it was taking steps to address the claims.
TerrAscend’s case may provide one of the first significant tests of how federal courts will handle those refund strategies, particularly as federal marijuana scheduling and the future application of Section 280E continue to change.