Jason Marin: Californians Helping Alleviate Medical Problems, Inc. v. Commissioner of Internal Revenue

Jason Marin: Californians Helping Alleviate Medical Problems, Inc. v. Commissioner of Internal Revenue
CANNANNEW REPORT

 Jason Marin Californians Helping to Alleviate Med. Problems, Inc. v. Comm’r of Internal Revenue, 128 T.C. 173, 128 T.C. 14 (U.S.T.C. 2007) Issue & Ruling In 1981 a case was filed in tax court that gave rise to the Internal Revenue Code (I.R.C.) § 280E, which disallows expenses with operating a business or trade that traffics controlled substances listed in schedules I and II on the Controlled Substance Act (CSA). Controlled substances listed in Schedules I and II are drugs with no medical use and carry the potential for abuse. Marijuana is listed in Schedule I. Because of this listing,  companies that deal in Marijuana sales are subject to I.R.C. § 280E and cannot deduct operating expenses from federal income taxes. Often, companies establish multiple operating entities to allocate operating expenses between the entity that distributes Marijuana and the non-distributing entity. Companies may fall into tax problems when the entities have intercompany transactions and do not adequately distinguish the expenses and revenues between each operating entity. Analysis One interesting case where the corporation successfully claimed some of the operating expenses is Californians Helping Alleviate Medical Problems, Inc. v. Commissioner of Internal Revenue, (CHAMP). CHAMP was organized on December 24, 1996. The articles of incorporation stated it “is organized and operated exclusively for charitable, educational and scientific purposes” and “The property of this corporation is irrevocably dedicated to charitable purposes.” Although CHAMP was one organization, it “operated with a dual purpose.” The first and primary purpose was to provide caregiving service to members who suffered from severe illnesses such as Acquired Immune Deficiency Syndrome (AIDS), cancer, multiple sclerosis. The second purpose was to provide the members with medical Marijuana under the California Compassionate Use Act. Each member of CHAMP would pay a membership fee in exchange for the right to obtain caregiving…

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Source : Jason Marin: Californians Helping Alleviate Medical Problems, Inc. v. Commissioner of Internal Revenue

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