A fascinating question (to me, at least) just crossed my mind. All of the following is hypothetical.
Mr. John Smith lives in a state with a medical marijuana law that allows him to purchase and smoke (or ingest in any other way) marijuana due to a medical condition. Let’s say California. He purchases $5000 worth of pot over the course of 2005 in a completely legal fashion (legal in the State of California, that is).
Question 1: Can he legally deduct $5000 from his Federal 1040, as this is a medical expense? I know he can TRY to deduct, but is there any tax/other law specifically prohibiting this? In what other situations regarding something legal in a state but illegal federally has this occurred?
Question 2: Will this likely bring down the wrath of the federal FBI/IRS/ATF/DHS folks?
Question 3: Has this been done in real life?
Question 4: Has this been done in real life successfully, i.e., w/o audit and creation of new fecal output orifice by aforementioned federales? Ooo, look a new reverse acronym for FOO!
Question 5: If the above hypothetical situation applies to you, will you try to do this so we can see if/how fast you get locked up?
One final note to the aforementioned (twice, now) federales, if they come across this - this situation is completely hypothetical. My name is not Mr. John Smith. I did not purchase $5000 worth of pot with my medical marijuana card in California in 2005. I don’t live in California or any other medical marijuana state. I am not deducting any medical expenses for FY 2005. Please don’t hurt me!
According to Revenue Ruling 97-9, cost for medical marijuana are not deductible for US tax purposes even when legal in the state and prescribed by a doctor. The reasoning seems to rely on Regulation Section 1.213-1(e)(2). The regulation requires the drugs be “legally procured.” They are legal in the state but illegal for federal tax purposes.
My point is that the drugs in the hypothetical medical marijuana situation are procured legally. I guess when you say “legally procured” you mean according to Federal law. The federal government obviously frowns upon the purchase of marijuana except with the proper authorization, which no one save government researchers have, I suppose. I also suppose the IRS follows federal law and isn’t bound by state laws…or is it?
Any known cases of this being attempted anyway, per questions 3 & 4? Was the Ruling cited a reaction to such an attempt or enacted pre-emptively?
Sure, they’re procured legally for California’s purposes, but not for the federal government’s. Allowing federal tax deductions for things that are federally illegal opens all kinds of doors that Bush & Co would, I’m sure, rather keep shut.
