CALIFORNIANS HELPING TO ALLEVIATE MEDICAL PROBLEMS, INC., Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent, 128 T.C. 173

Summary

The Commissioner disallowed all of petitioner's deductions and costs of goods sold, determining that those items were expenditures in connection with the illegal sale of drugs within the meaning of 26 U.S.C.S. § 280E. However, the Commissioner conceded that the disallowance under § 280E did not apply to costs of goods sold. The taxpayer argued that its supplying medical marijuana to its members, who were generally very ill, was not "trafficking" within the meaning of § 280E. The court disagreed, recognizing Congress's sharply defined public policy against dealing illegal drugs, even if State law permitted their possession. The court held that the provision of care giving services was a trade or business separate and apart from its provision of medical marijuana, and expenses relating to care giving were properly deductible under 26 U.S.C.S. § 162(a).