My client has a K-1 from marijuana grow business. No income, but on line 20 code Z with a statement showing Section 280E exclusions -$1700 (the federal statute that states that a business engaging in the trafficking of a Schedule I or II controlled substance (cannabis) is barred from taking tax deductions or credits).
It is my understanding these are not deductible. Can I ignore this?
Also, on the basis worksheet provided by K-1 producer, the $-1700 is not applied reducing basis, but on the bottom of the K-1, Partners capital account analysis it is applied showing an ending capital reduced by the $1700. Is it correct to reduce capital, but not basis. I am a little confused. Thanks for any help. I do not do partnership returns or cannabis returns.
It is my understanding these are not deductible. Can I ignore this?
Also, on the basis worksheet provided by K-1 producer, the $-1700 is not applied reducing basis, but on the bottom of the K-1, Partners capital account analysis it is applied showing an ending capital reduced by the $1700. Is it correct to reduce capital, but not basis. I am a little confused. Thanks for any help. I do not do partnership returns or cannabis returns.