With October’s deadline for taxpayers on tax return filing extension for tax year 2024 quickly approaching, this alert provides updates to our post in May on the exploding trend of cannabis tax filers taking the uncertain tax position that Internal Revenue Code Section 280E is inapplicable.

Litigation Update

A closely watched case in Tax Court from New Mexico, New Mexico Top Organics, Inc. v. Commissioner, is the first to challenge Section 280E through statutory construction arguments. The Tax Court recently granted a joint motion to submit the case on a stipulated basis, meaning the dispute is now purely legal.

• October 17, 2025 Taxpayer’s opening brief due.
• January 16, 2026 IRS reply brief due (Expected legal justification).
• February 27, 2026 Taxpayer’s final reply brief due.

In Canna Provisions, Inc., et. al. v. Bondi, businesses are challenging the constitutionality of Section 280E under the Commerce Clause. After a dismissal in District Court and an affirmation by the First Circuit, the case is signaling a move toward the U.S. Supreme Court. A favorable ruling could overturn 20 years of precedent.

“No Consideration” of Amended Returns

Many filers of amended returns report receiving “No Consideration” letters from the IRS, which create longer pathways to appeal than outright rejections.

Regulatory and Legislative Updates

In August 2025, President Donald Trump indicated a decision on rescheduling cannabis is forthcoming. Reclassification to Schedule III would render Section 280E inapplicable. However, this has prompted a schism within the party:

• House Appropriations Committee Advanced a bill to prohibit the DOJ from funding the removal of cannabis from Schedule I.
• Alternative GOP Legislation Proposing reclassification to Schedule III via legislation rather than administrative process.
• Democratic Proposal Legislation introduced to "deschedule" cannabis entirely from the Controlled Substances Act.

Ongoing Congressional Action

Separately, bills introduced in both the House and Senate in February seek to amend Section 280E to specifically maintain the prohibition on deductions for cannabis businesses, even if rescheduling occurs. No further action has been taken on these bills as of the date hereof.