IRS Field Advisory: §168(k) Bonus Depreciation Disallowed for Cannabis Plant-Touching Operations

## Overview An IRS field advisory memorandum instructs examination agents to disallow §168(k) bonus depreciation claimed by cannabis plant-touching entities. The advisory concludes that the bonus depreciation deduction — which allows businesses to immediately deduct 100% (now 60% under TCJA phase-down) of qualifying property costs — is a "deduction" subject to §280E disallowance. ## Key Analysis Bonus depreciation under §168(k) is a deduction for federal income tax purposes. §280E disallows all deductions for businesses trafficking in controlled substances (except COGS). Therefore, cannabis operators cannot claim bonus depreciation on cultivation equipment, extraction equipment, dispensary fixtures, or other qualifying property. ## Impact Many cannabis operators — particularly cultivators and processors with heavy capital expenditure requirements — have been claiming bonus depreciation to offset income. The advisory signals that these deductions will be disallowed on audit, potentially creating significant underpayment assessments and penalties.