Several Congressmen have been receiving inquiries from their constituents about the legality of deducting expenses incurred when selling marijuana for medical purposes. (See Practitioners TaxAction Bulletin No. 2011-18 p4.) The IRS has responded with a series of informational letters. Under the Internal Revenue Code Sec 280E disallows deductions incurred in the trade or business of controlled substances of which marijuana of course falls into. There is no exception for medical marijuana neither under either the code nor under Controlled Substances Act. In order for the IRS to publish formal guidance would necessitate Congress to change the Controlled Substance Act or Internal Revenue Code.
It doesn’t seem likely given the current political atmosphere and public attitude that Congress will make the necessary changes. I believe that is too bad, because if it were allowed into the code it would be one further step to full legalization and taxation of marijuana and surely would help take the criminal element out of the trade and of course generate additional revenue to bridge the current large and getting larger budget deficit.