280E Tax and Labs

Does IRS 280E tax code apply to 3rd party testing labs?

You should 100% always have an accountant who is going to handle these things for you. I haven’t seen a specific court case where a testing lab was charged with tax evasion or fined for late payment under 280E because they were seen as “trafficking” and were taking inappropriate deductions.

The definition:

No deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on 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) which is prohibited by Federal law or the law of any State in which such trade or business is conducted.

(Added Pub. L. 97–248, title III, § 351(a), Sept. 3, 1982, 96 Stat. 640.)

The key words: consists of trafficking

Trafficking is the transportation of or transacting in illegal goods. In this case the illegal drug would be cannabis under the CSA.

So a lab is probably not in the business of transportation of or transacting in (aka selling) cannabis. Which would appear on the surface to remove it from 280E.

If you are not moving the cannabis around or selling the cannabis to people then you do not meet the definition of 280E which would limit your ability to deduct your business expenses.

The same could not be said of a testing lab that you were doing in-house. Or of say a secure transporter who moves the cannabis from one building to another. Some other adjacent non-cultivation, non-retail, non-processing businesses which would be captured under the “trafficking” bucket.

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Im not giving legal advice, but testing labs do indeed take payment for services regarding schedule 1 drugs.

Simple interpretation would guess that a testing lab that drives around and picks up samples is indeed transporting cannabis, though not for sale.

Find a good attorney and accountant that will put their liability on the line for you.

This isnt the right place to ask these questions :joy:

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I’ve received advice on this subject before.

You should speak with not only a CPA and attorney but also a securities/trust protection specialist.

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Problem is there are so many 280e experts out there. Indont trust many of them. I’ve had so much bad advice from accountants over the last 6 years it’s crazy. They all swear they understand 280e.

Inwould day from my experience that a lab that tests cannabis for the medical or rec market will certainly be held to 280e

If you make less then 25m per year 471c is your friend.

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The crazy part is you don’t even have to wonder about this stuff. You can legit just ask the IRS (they are more friendly and helpful than I had ever expected them to be).

And you could instead just PAY THE FUCKING TAXES and stop all the hand wringing.

Want to participate in a licensed facility in a federally illegal industry - then pay the toll.

The risk to not paying the toll is similar to operating in a federally illegal industry without paying to get the licensed facility status to begin with.

Which is why people charge so fucking much all the damn time to do just about anything. They like you to share the risk with them.

At this point - I count anything that is physically transporting or selling cannabis as trafficking. Everything else that we do that isn’t that - is above the line (aka the fancy line on the taxes for reductions of revenue).

And guess what - there is a lot of stuff that is on either side of that line. Its not like running a normal business because the government doesn’t want it to be like that. They don’t want it to be clear and easy - because they don’t want you to participate in these activities.

So decide just how much advice you want to PAY someone for. If they are willing to take any liability (hint hint they are not interested in taking your liability). And then decide if the potential risk is worth the squeeze for you.

Its seems like the risk has been worth it for about HALF of the people who took the risk originally. Which is better than most businesses types but still the flip of a coin.

There are some really good CPAs and there are some that are seriously fucking stupid when it comes to the cannabis industry. Same thing with lawyers. And hell - half the time its specific to how your individual district of the federal agents are monitoring and treating you (which is unfair, but also true). So make sure whatever person you decide to pay to give you this advice has actually done it in your state/region/district. Cause otherwise, what is their advice really worth?

Probably about as much as the advice you find on internet forums. :smiley:

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Labs that pickup their own samples (which is how it should be done) would certainly be considered to be trafficking then, right?

Hahaha I’m not starting a lab or anything, this question was purely out of curiosity

So you’re saying there’s no risk? :joy: There are hundreds of illegal dispensaries operating in NYC and the mayor’s action against this is going after the landlords. Haven’t seen anything substantial yet in the way of deterring illegal operation.

No. I said the risk was similar to operating in a non-licensed state marketplace.

Which is, you know, pretty risky. :wink: That doesn’t stop people from doing it though.

Get a DEA license and test hemp products …

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