And while the agency’s latest prohibition protections have largely remained under the radar for the past few months, at least one cannabis advocacy group, the New Jersey Cannabis Industry Association, has already felt the new IRS policy hit home.
In January, after months of talks with IRS representatives about the status of the NJCIA, the Garden State canna-business trade group was denied a nonprofit determination letter just days after the new policy was enacted. “At the eleventh hour, we were informed, ‘Sorry, there’s been a procedural rule change, we’re not giving these types of letters to your type of company. ‘”
For the handful of national and state-level cannabis advocacy organizations that already enjoy either 501(c)3 or 501(c)6 federal tax exemption, the IRS policy update has caused both confusion and worry, with no clear indication whether the federal agency will use the new rule to revoke businesses’ existing nonprofit status.
Since states like Colorado and California legalized retail cannabis businesses, the IRS has administratively shafted the industry, applying Section 280e of the U.S. tax code to deny any credits or deductions from income obtained by selling a federally illicit drug. Without deductions, state-legal pot shops and marijuana producers are made to pay incredibly high taxes, even as the threat of raid and arrest looms.
Despite the fact that Section 280e was implemented in the early ’80s as a way to dissuade black market drug dealers from taking federal tax breaks, a 2017 challenge to that rule was rejected by both U.S. tax court and the