280E Is Still Risky. So Is Doing Nothing.

We continue to run into advisers who believe that challenging Section 280E, amending prior-year returns, or filing current returns without paying tax on phantom income is simply too aggressive. I understand the skepticism. The issue is not settled. The IRS disagrees with our position. Refund claims can be rejected, amended returns can be challenged, and there is always some risk when a taxpayer takes a position the IRS does not like.

I have probably been too forceful at times when explaining our experience because, frankly, we have not personally seen many of the horror stories people associate with challenging the IRS. That does not mean those risks do not exist. But I think the opposite can also be true: people are often so fearful of the IRS that they overstate the risk of taking a reasonable and defensible position.

What concerns me most is that doing nothing is routinely described as the "conservative" approach, as if waiting carries no risk. It does. A cannabis operator can wait for the courts, Treasury, the IRS, and the federal government to give us perfect clarity on 280E. The problem is that the statutes of limitation do not wait with them. By the time everyone agrees that a taxpayer could have recovered prior-year taxes, the taxpayer's ability to claim the refund may already be gone.

That is why I think this discussion needs to move beyond whether challenging 280E is risky. The better question is which risk makes the most sense for the particular taxpayer.

The Argument Starts With the Statute, Not With Momentum

Our position is also sometimes misunderstood as an argument that "everyone is doing it," and solely because there is momentum, 280E somehow disappears. That is not our argument. The starting point is the language Congress wrote into Section 280E. The statute applies to a business trafficking in controlled substances prohibited by federal or state law that are "within the meaning of schedule I and II" of the Controlled Substances Act. The statute does not simply say "a substance listed on Schedule I or II." We believe those words matter.

That distinction is important because the federal government's own findings regarding marijuana have changed dramatically. Schedule I is supposed to include substances with no currently accepted medical use in treatment in the United States and a lack of accepted safety for use under medical supervision. HHS completed an extensive scientific and medical review and concluded that marijuana has accepted medical uses and recommended Schedule III. The Department of Justice's Office of Legal Counsel subsequently concluded that DEA's historical five-part test for determining accepted medical use was "impermissibly narrow" and that, under the CSA, DEA must accord significant deference to HHS's scientific and medical determinations.

More recently, the DEA's own post-hearing brief in the rescheduling proceeding made the point even harder to ignore. On the first page of their brief, the Government states that marijuana no longer fits two of the three statutory requirements necessary to remain in Schedule I. The brief further acknowledges evidence that marijuana's abuse and dependency profile better aligns with Schedule III than either Schedule II or Schedule I. This is no longer just cannabis operators, accountants, attorneys, or industry advocates arguing that marijuana does not belong in Schedule I. The federal government itself is now saying that marijuana does not satisfy the statutory criteria for Schedule I, and has not for some time.

A Legitimate Dispute Is Not a Frivolous Position

Does that automatically mean a court will eventually conclude that 280E did not apply in 2023, 2022, or some earlier year? No. That question is being litigated, and the IRS has not backed down. In New Mexico Top Organics, the IRS continues to argue that marijuana's formal scheduling status during the tax year controls and that 280E therefore applied until rescheduling became legally effective. The taxpayers are making the opposite argument: Congress did not say merely "listed" on Schedule I or II; it said "within the meaning" of those schedules, and subsequent federal findings demonstrate that marijuana did not actually fit the statutory meaning of Schedule I.

That is a legitimate legal dispute. The IRS taking its position does not make the taxpayer's position frivolous. The IRS is one of the parties to the dispute. Ultimately, courts decide what the statute means.

Why the Statute of Limitations Changes the Math

This is where the statutes of limitation become critically important. Taxpayers generally have a limited period to amend for a refund. Once that period expires, winning the legal argument later may be meaningless for that taxpayer.

Imagine that a court ultimately decides in two or three years that marijuana was no longer "within the meaning" of Schedule I beginning in 2023. That could be a major victory for the industry. But an operator who allowed the refund statute for 2023 to expire may receive absolutely no benefit from that victory. You cannot go back later and preserve a statute that you already allowed to expire.

That is why I have a difficult time accepting the argument that waiting is automatically the conservative choice. In some cases, waiting may be appropriate. But in most cases, waiting could ultimately be the most expensive decision available.

The Middle Ground: A Protective Claim for Refund

There is also a middle ground. A taxpayer who is uncomfortable filing a full amended return and immediately requesting a refund can consider filing a protective claim for refund. Protective claims exist specifically for situations where a taxpayer's right to a refund depends on pending litigation, future events, or an unresolved legal question. The taxpayer may give up the possibility of receiving an immediate refund, but the claim can preserve the right to pursue that refund later if the issue is ultimately resolved favorably. We recently suggested exactly that approach to a client who was uncomfortable moving forward with full amendments as the statute was getting close to expiring.

This Is Not a Fringe Position

It is also worth looking at what has been actually happening out there. This is not a strategy being pursued by a few small companies with nothing to lose. Major multistate operators have accumulated enormous disputed 280E positions. By March 2026, MJBizDaily reported that approximately $1.6 billion of unpaid 280E-related taxes were sitting on the balance sheets of just five large MSOs. Trulieve has publicly disclosed receiving approximately $114 million in refunds associated with its challenge to 280E. Those facts do not prove that Trulieve or anyone else will ultimately prevail, but they certainly demonstrate that sophisticated public companies, their attorneys, their accountants, and their auditors are treating these positions as real disputes rather than fantasy tax strategies.

There is risk on the other side as well. The Department of Justice recently sued TerrAscend seeking to recover an approximately $8.3 million 280E refund previously issued by the IRS. We are watching that case closely. It appears to have an unusual procedural component because the refund was allegedly issued before completion of a required administrative review. But the TerrAscend case also illustrates another important point: tax controversies operate within procedural rules and statutes of limitation. The government does not have unlimited time any more than the taxpayer does. There are separate statutes governing assessments, refund claims, erroneous refund suits, administrative appeals, and litigation. These processes matter, and it is why simply saying "the IRS could come after you someday" is not a particularly useful risk analysis.

What We Have Actually Seen at Calyx

Our own experience at Calyx does not prove how the courts will ultimately rule, and I do not want to suggest otherwise. But our experience is relevant. We have worked with hundreds of cannabis operators and have prepared these positions for years. We have seen most of our amended returns processed, liabilities reduced, NOLs increased, and refunds issued. We have also seen refund claims rejected. When that happens, the answer is not necessarily over. Appeals and litigation exist precisely because taxpayers and the IRS frequently disagree about how the law should be interpreted.

The Right Answer Is Different for Every Taxpayer

So yes, challenging 280E carries risk. Filing an amended return carries risk. Filing a current return without reducing deductions under 280E carries risk. A protective claim has limitations of its own. But waiting also carries risk, and that side of the equation deserves just as much attention.

The right answer is going to be different for every taxpayer. The potential refund, liquidity, entity structure, quality of the records, strength of the underlying technical position, state tax consequences, tolerance for controversy, and proximity of the statute of limitations all matter. Some operators should probably amend. Some may be more comfortable filing protective claims. Others may reasonably decide to wait. What I disagree with is the idea that doing nothing is inherently the safe choice.

The federal government has now concluded that marijuana has accepted medical use, has accepted safety for use under medical supervision, and no longer satisfies key statutory requirements for Schedule I. At the same time, the IRS is litigating whether those findings affect Section 280E for prior years. We finally have the legal fight the industry has been waiting for. My concern is that some cannabis operators will wait until that fight is over, discover that the taxpayers were right, and then learn that their refund statutes expired years earlier. I hate seeing money left on the table.

If your business has open tax years and you have not evaluated a 280E position, contact us through the Calyx CPA site. We can review your filed returns, identify which years remain within the refund window, and help you decide whether an amended return, a protective claim, or waiting makes the most sense for you.

This article is intended for informational purposes only and does not constitute legal, tax, or medical advice.