Olive v. CIR

A trade or business, defined as the activity entered into with the dominant hope and intent of realizing a profit, trafficking in controlled substances prohibited by Federal law is precluded from deducting any amount of ordinary or necessary business expenses under 26 U.S.C. § 280E.

Martin Olive, owner of a medical marijuana dispensary, the Vapor Room, appealed the Tax Court's decision to preclude Petitioner from deducting any amounts of doing ordinary business associated with his medical marijuana dispensary under 26 U.S.C. § 280E. Inside the dispensary, patrons had the option of consuming, using different marijuana and vaporizers, and interacting with staff members regarding illness, legal or political matters. They were also given the option of using services such as yoga, movies, and massage therapy. All of these amenities and activities were offered at no charge. On appeal, the Ninth Circuit determined whether Olive may be able to deduct any costs pursuant to the ordinary cost of doing business. First, the panel looked into whether the dispensary was a trade or business. As a result, they determined they needed to establish whether the dispensary was entered into the dominant hope or intent of realizing a profit. Due to the amenities at the dispensary having been offered at no charge, the only activity the Vapor Room engaged in was the sale of medical marijuana. Therefore, the trade or business was limited to medical marijuana sales, therefore precluding Olive from deducting the costs obtained in the course of operating the Vapor Room for federal tax purposes. Olive, however, argued that I.R.C. should not apply to medical marijuana because it did not exist when 280E was enacted. Nonetheless, the panel rejected this argument because statutes can apply to new situations. AFFIRMED.