Fox Rothschild LLP
It’s nonetheless too early for hashish corporations to attempt to benefit from a possible tax break if the Division of Justice (DOJ) reschedules hashish below the Managed Substances Act.
In a latest press launch, the Inner Income Service (IRS) reminded taxpayers that hashish stays a Schedule I managed substance. As such, hashish companies can not but search reduction from Part 280E of the IRS Code, which prohibits taking deductions or credit for any quantity that was paid or incurred as a part of any commerce or exercise that consists of unlawful trafficking in a managed Schedule I or II. substance
Part 280E applies to all companies that promote hashish in the US, even when they function in states which have legalized the sale of the drug. It successfully forces hashish corporations to pay hundreds of thousands extra in taxes than nearly some other kind of enterprise.
The IRS issued the press launch as a result of some hashish corporations filed amended returns after the DOJ started a proper rulemaking course of earlier this 12 months to contemplate making hashish a Schedule III managed substance. Companies tried to assert deductions that had been initially disallowed below Part 280E.
It’s unclear when, or even when, hashish will likely be rescheduled. The DOJ revealed its preliminary discover of proposed rulemaking on Might 21, 2024, and can settle for public feedback till July 22, 2024. After the remark interval ends, a listening to could also be held earlier than to finalize the ultimate rule. The latest sentence of the Supreme Courtroom that leaves the Chevron doctrine additionally provides some doubt to the rescheduling course of. As a result of rescheduling proceeded as a regulatory course of initiated by businesses and never by Congress, it’s now extra weak to problem, since courts are not required to defer to the experience of administrative businesses when contemplating if regulatory actions are licensed by relevant statute.
In a earlier alert, we outlined among the tax advantages that hashish corporations ought to pursue if hashish is rescheduled.
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