Our resident tax nerd, Joe Kristan, touched on the IRS competency exam a couple of weeks ago but yesterday the IRS officially rolled out the red carpet. So, if you prepare tax returns but aren’t a CPA, lawyer, or enrolled agent, you now have the distinct pleasure of spending $116 to spend a few hours with everyone’s favorite test vendor – Prometric – whose proctors will keep a watchful eye on you to make sure your ostomy bag isn’t a secret answer bank, that you aren’t packing heat and your gum is appropriately disposed of. What’s the point of all this, you ask? IRS Commish Doug Shulman can answer that:
“This is another major step forward in our effort to enhance tax preparation service to millions of taxpayers. People should feel assured that the person they hire to prepare their federal tax returns has a working knowledge of the tax code,” said Doug Shulman, IRS Commissioner. “The majority of tax return preparers are reputable professionals but the few bad apples cause great harm to taxpayers and the industry.”
Got it? It’s for the good of the country. Just make sure you don’t have a runny nose on the day of your test. That’ll get you in trouble.
Apparently there’s been a bit of unnecessary confusion out there about the deductibility of marijuana for medical purposes. The Wall St. Journal article that we linked to this morning discusses the problems employers are encountering wi e.g. can’t use HSA funds; they don’t care if you’ve got a card, if you test positive you’re fired).
But the question of deducting the cost of your White Widow et al. that you legally purchase in states like California and Colorado has been making the rounds. After a little discussion, it’s pretty clear that the IRS is not going allow you deduct your pot for tax purposes simply because it’s still illegal at the Federal level. Doctor’s note be damned.
The confusion arose due to the following letter that was sent to New York Senator Chuck Schumer, who had sent a letter to the IRS inquiring about a constituent using a “herb” to treat migraine headaches:
As with many facets of how to treat medical marijuana for tax and other purposes, it appears that those in charge are merely tiptoeing around the question. In the letter, the term “marijuana” is never used explicitly – the term used is “herb”. While it’s my understanding that the specifics of the case involved medical marijuana used for the treatment of migraines, that isn’t specifically stated in the sanitized version of the letter. No use of “marijuana”, just the term “herb.” That could be St. Johns Wort or milk thistle as far as the IRS is concerned.
Fortunately TaxProf Paul Caron clears up for us in a couple of updates from his latest post on this issue:
Update #2:Rev. Rul. 97-9, 1997-1 CB 77, specifically precludes a medical expense deduction for medical marijuana:
An amount paid to obtain a controlled substance (such as marijuana) for medical purposes, in violation of federal law, is not a deductible expense for medical care under § 213. This holding applies even if the state law requires a prescription of a physician to obtain and use the controlled substance and the taxpayer obtains a prescription.
So the IRS in Info. 2010-0080 either was (1) signalling a retreat from its position in Rev. Rul. 97-9 by not mentioning the federal legality of the substance; (2) implicitly referring only to legal herbs (and hence not covering marijuana).
Update #3: I am told by an enterprising reporter that the herb in question in Info. 2010-0080 is Petadolex, so it appears that interpretation #2 above controls and the conclusion in Rev. Rul. 97-9 denying a medical expense deduction for medicial marijuana still obtains.
So there you have it. Regardless if you have glaucoma, cancer, HIV, chronic pain, high anxiety or any ailment that marijuana can effectively alleviate, don’t bother trying to include it on Schedule A. We’d ask the IRS to implore a little common sense here but legally, as long as marijuana remains illegal at the federal level that’s not going to happen. And from a more practical standpoint, we’re still talking about the IRS.
Our resident tax nerd, Joe Kristan, touched on the IRS competency exam a couple of weeks ago but yesterday the IRS officially rolled out the red carpet. So, if you prepare tax returns but aren’t a CPA, lawyer, or enrolled agent, you now have the distinct pleasure of spending $116 to spend a few hours with everyone’s favorite test vendor – Prometric – whose proctors will keep a watchful eye on you to make sure your ostomy bag isn’t a secret answer bank, that you aren’t packing heat and your gum is appropriately disposed of. What’s the point of all this, you ask? IRS Commish Doug Shulman can answer that: