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California Helping to Alleviate Medical Problems, Inc. v. Commissioner
United States Tax Court
128 T.C. 173 (2007)
California Helping to Alleviate Medical Problems, Inc. (CHAMP) (plaintiff) was a community center that worked with people with serious illnesses including AIDS, cancer, and multiple sclerosis. CHAMP charged a membership fee to fund its programs. CHAMP provided its members with caregiving services including support groups, individual counseling, and wellness classes, and it distributed food and hygiene products to its low-income members. CHAMP also provided its members with medical marijuana, so long as they had a doctor’s note and valid photo identification. CHAMP deducted its expenditures related to its caregiving and medical-marijuana programs from its income taxes as business expenses. The Commissioner of Internal Revenue (the Commissioner) (defendant) disallowed the deductions. The Commissioner argued that CHAMP was in the business of trafficking medical marijuana and, therefore, all its deductions were barred by § 280E of the Internal Revenue Code. Section 280E disallowed deductions for any expenses related to trafficking controlled substances that were illegal under federal or state law. Because marijuana, even if used for medical purposes, was a controlled substance, expenditures related to it were prohibited. CHAMP countered, arguing that it was engaged in two separate trades or businesses: one involving medical marijuana, and one involving caregiving. Even if marijuana-related deductions were disallowed, CHAMP believed that it should still be able to deduct expenses related to caregiving. CHAMP petitioned the United States Tax Court for a redetermination.
Rule of Law
Holding and Reasoning (Laro, J.)
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