Tax Court: Patient's Mutual Assistance Collective Corp v. Commissioner — §280E Upheld

## Overview The U.S. Tax Court issued its opinion in *Patient's Mutual Assistance Collective Corp. v. Commissioner*, sustaining the IRS's disallowance of approximately $4.7 million in business deductions claimed by a California cannabis dispensary on its federal income tax returns for 2014–2017. ## Key Holdings The court reaffirmed its longstanding position that IRC §280E is constitutional, enforceable against state-licensed cannabis businesses, and not rendered inoperative by state legalization. The court rejected the dispensary's arguments that: (1) §280E constitutes an improper penalty under the Eighth Amendment, (2) federal enforcement against state-compliant operators violates due process, and (3) the cannabis industry's changed social and economic context since 1982 requires reinterpretation of the statute. ## COGS Analysis The court permitted COGS deductions of approximately $1.2 million relating to direct cannabis acquisition costs, but disallowed overhead allocations to COGS that the dispensary had argued were part of its production activity. This COGS determination is consistent with, and arguably anticipated, the subsequent Rev. Rul. 2024-12. ## Significance This decision reinforces the critical importance of §280E compliance planning and underscores that Tax Court will not provide judicial relief from §280E on constitutional or equitable grounds. Legislative change (via the SAFE Banking Act amendments or standalone §280E reform) remains the only path to full relief.