Tax Procedure: A Marijuana Dispensary Cannot Enjoin an IRS Investigation Concerning Trafficking in a Controlled Substance

Marijuana, tax, IRSMarijuana is legal for medical use in over half of the states, along with the District of Columbia. It is also legal for recreational use in eight states and the District of Columbia. At the federal level, however, marijuana is classified as a controlled substance under Schedule I of the Controlled Substances Act. This dichotomy creates a variety of tricky issues for marijuana growers and dispensaries.

One problem is that the Internal Revenue Code precludes deductions for business expenses for any trade or business “if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act).” I.R.C.… Read More

Compensatory Settlement Payments in False Claims Act Cases are Deductible.

While business expenses are generally deductible, fines and penalties are not. In False Claims Act cases, the government is awarded treble damages; to what extent are these payments deductible? The First Circuit addressed that question last week in Fresenius Medical Care Holdings, Inc. v. United States, 2014 U.S. App. 15536 (1st Cir. 2014) (pagination not provided by LEXIS).

Fresenius was a refund case; it grew out of a settlement of a variety of claims, including claims under the False Claims Act and criminal fines. Significantly, the taxpayer and the government were unable to agree on the appropriate tax treatment of the entire settlement.… Read More