IRS Official Clarifies That Medical Marijuana Is Not Tax-Deductible Under Federal Law After Misstatement
For anyone left wondering whether medical marijuana purchases are deductible on your federal taxes, the answer is no.
But there was some confusion about the tax option after Internal Revenue Service (IRS) National Taxpayer Advocate Erin Collins was asked about the issue during an interview with C-SPAN’s Washington Journal on Thursday.
A Nevada-based caller asked Collins why he couldn’t find an option on the tax service website TurboTax to deduct cannabis purchases, which are legal under state law but not federally. The official responded that she’d “plead ignorance on the marijuana” question, “unless you’re saying it’s a medical deduction.”
“If it is a medical expense, and then you have an option on your Schedule A, you could potentially put it there,” she said.
Marijuana is legal for medical and recreational purposes in Nevada, and the caller didn’t specify whether he was a registered patient. But federal law is clear, and while Collins—who was appointed to her role by Trump administration Treasury Secretary Steven Mnuchin in 2020—said there was “potentially” an opportunity to claim deductions if it was medical marijuana he was purchasing, she clarified in a statement to Marijuana Moment on Friday that that was not the case.
“While answering viewer calls on C-SPAN Washington Journal yesterday, one viewer asked about the deductibility of marijuana purchases he had made,” she said. “I had not previously studied the federal tax treatment of marijuana, and I speculated that marijuana might ‘potentially’ be deductible as a medical expense in certain circumstances. After the program, I checked the law. To clarify, medical marijuana is not tax deductible for federal purposes under current rules.”
IRS, which falls under the Treasury Department, says it doesn’t have discretionary authority to adopt policies that permit marijuana-related deductions while cannabis remains illegal under federal law. But the agency has taken steps to clarify tax policy for state-legal marijuana businesses.
De Lon Harris, commissioner of examination at the IRS Small Business/Self Employed (SB/SE) Division, recently spoke about tax-related issues in state-legal marijuana markets in a webinar hosted by PBC Conference. He said that while cannabis remains federally illegal, businesses that deal in the controlled substance must still file federal taxes, and IRS is here to help.
Harris also provided tips for marijuana businesses on tax compliance in a blog post published in September. And IRS separately hosted a forum in August dedicated to tax policy for marijuana businesses and cryptocurrency.
Another top IRS official who’s since left the agency also participated in a PBC Conference webinar in 2020. He offered similar recommendations to cannabis businesses, while also recognizing that the legalization movement will potentially succeed in ending prohibition in “all states.”
Current Treasury Secretary Janet Yellen said late last year that freeing up banks to work with state-legal marijuana businesses would “of course” make the IRS job of collecting taxes easier.
Mnuchin, during the Trump administration, repeatedly addressed the issue, saying the current policy conflict creates “significant problems” for IRS and financial regulators. It “creates significant risk in the communities for collecting this amount of cash. It’s problematic,” he said last year.
At a separate PBC Conference event in September, former National Credit Union Administration Chairman Rodney Hood criticized Congress for failing to advance marijuana reform and talked about the need for federal financial regulators to take a “principles-based approach to cannabis banking” and “deliver a preliminary regulatory framework that we can share with other regulators and members of Congress who share our concern about addressing these problems.”
Hood also recently said that marijuana legalization is not a question of “if” but “when,” and he’s again offering advice on how to navigate the federal-state conflict that has left many banks reluctant to work with cannabis businesses.
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