Issue

Is there a business deduction for expenses incurred in marijuana related enterprises?

Related Tax Rules or Regulations

Internal Revenue Code Section 61

Internal Revenue Code Section 280E

Prior to 1982, an illegal business was able to reduce its revenue by the cost of any product it sold (Cost of Goods Sold, or COGS), as well as other ordinary and necessary general and administrative (G&A) business expenses like rent, packaging, utilities, travel expenses, and even the cost of a small scale used to weigh the controlled substances sold by the taxpayer. In 1982, the IRS enacted Section 280E which dictated that businesses that trafficked in controlled substances, as defined by the Controlled Substance Act, could no longer deduct its expenses.

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Issue

Do the monies or amounts received by an egg donor in exchange for her eggs constitute taxable income?

Related Tax Rules or Regulations

Internal Revenue Code Section 61 provides that gross income includes all income from whatever sources derived, including compensation for services.

Internal Revenue Code Section 104(a)(2) excludes from taxable income the amount of any damages (other than punitive damages) received on account of personal injuries or physical sickness.

Income Tax Regs sec. 1.104-1(c)(1) defines the term “damages” as “an amount received (other than workers’ compensation” through prosecution of a legal suit or action, or through a settlement agreement entered into in lieu of prosecution.”

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