Exploring IRS Section 471(c) as a Potential Relief for Cannabis Businesses Impacted by 280E

This article examines how IRS Section 471(c), introduced by the Tax Cuts and Jobs Act (TCJA), might offer a workaround for cannabis businesses facing the burdens of Section 280E, which disallows standard business expense deductions for entities involved in federally illegal activities. Section 471(c) could allow qualifying cannabis businesses to classify most expenses as inventory costs, thus bypassing 280E’s limitations and reducing taxable income. However, the IRS has not yet provided guidance on this application, and the issue has not been tested in court. Cannabis businesses considering this approach should do so cautiously, in consultation with tax professionals, and be prepared for potential disputes with the IRS.

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