No Deduction For Seized Drugs Because Value Not Included in Sales.

The petitioner operated a medical marijuana dispensary in West Hollywood, CA.  Federal Drug Enforcement Agency agents raided the dispensary and seized $600,000 worth of marijuana.  The petitioner, for the year at issue, reported $1,700,000 of gross sales and $1,429,614 in cost of goods sold.  The petitioner is entitled to deduct the cost of goods sold, but cannot deduct any other operating costs.  The petitioner claimed to have included the $600,000 amount in both gross sales and cost of goods sold.  However, the petitioner could not substantiate any of the income or deduction items and was not entitled to reduce his reported sales amount by the $600,000 he included in cost of goods sold.  In addition, the petitioner could not claim an I.R.C. Sec. 165 loss for the seized marijuana because I.R.C. Sec. 280A bars a deduction for any amount incurred in connection with trafficking in a controlled substance.  The court upheld the imposition of an accuracy-related penalty.  Beck v. Comr., T.C. Memo. 2015-149.