IRC Section 280E

IRC Section 280E is a U.S. tax code provision that prohibits businesses involved in the trafficking of illegal substances, like cannabis, from deducting ordinary business expenses on their tax returns. While states may legalize cannabis use, it remains illegal federally. This means cannabis businesses cannot reduce their taxable income by subtracting typical costs such as salaries or rent, leading to significantly higher tax bills. Essentially, Section 280E limits the tax benefits available to businesses that operate in industries considered illegal under federal law, despite state-level legalization.