Over the years, taxpayers have made countless arguments in an effort to avoid the harsh effects of IRC Section 280E. Most of these efforts proved unsuccessful. Yet, they can still provide helpful guidance so that the same mistake is not repeated. This chapter collects and summarizes the most common of these arguments.

Poor Record Keeping and Documentation

If you can’t prove it, then it didn’t happen. Proper record keeping and documentation is of great importance for any business. Such efforts help provide an accurate set of books and records, provide useful guidance and insight to management, and prove the income, expenses, deductions, and credits claimed on a taxpayer’s income tax return. Case after case demonstrates that the IRS will not allow taxpayers to simply “guess” at their deductions. It does not matter whether the business is regulated or unregulated, legal or illegal. If the taxpayer does not have sufficient record keeping or documentation, the government will not allow the reductions and deductions from income.

Hiding the Books and Records

The taxpayer has the burden of “proving” his reductions, deductions and credits. In an eff

De Minimus Separation of Activities

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