If you owe the IRS for a 280E year, rescheduling did nothing for that balance. Not a dollar.

Most of the industry has spent 2026 talking about what happens next: medical-side deductions, cost allocation, the guidance that still hasn’t landed. Almost nobody is talking about the money you already owe. This month, in court, the IRS made it clear it intends to collect that money on its own terms.

What the IRS Is Arguing Right Now

On September 22, the government filed its brief with the Ninth Circuit in Mission Organic Center v. Commissioner. The facts are worth knowing because they could be your facts.

Mission is a San Francisco dispensary that owed roughly $5.25 million in federal income tax for 2016 through 2020. It offered the IRS $65,000 to settle through an offer in compromise, the program that lets a business pay less than it owes when it cannot realistically pay in full.

To judge an offer, the IRS calculates your “reasonable collection potential.” That is your assets plus the income it expects you to generate over the offer period, minus your allowable expenses. For most businesses, rent, payroll and inventory count as allowable expenses. For Mission, the revenue officer followed an Internal Revenue Manual section that tells examiners to limit a cannabis business’s expenses the same way 280E does.

The result: the IRS calculated Mission’s collection potential at about $57.85 million. That’s more than ten times what it actually owed, for a dispensary whose gross receipts peaked around $16 million. The offer was rejected.

The Tax Court upheld that rejection in December 2025, over dissents. Mission appealed, and the IRS is now defending the same approach at the Ninth Circuit.

The Truth: under the IRS’s current approach, a plant-touching business can be “able to pay” on paper while it is going broke in reality. The formula counts your revenue and ignores most of what it costs you to earn it.

What Rescheduling Changes, and What It Doesn’t

Here is where operators get the story wrong.

Rescheduling moved medical marijuana under a state license to Schedule III in April 2026, and 280E stops applying to that activity. It did not reach back and erase liabilities already assessed for prior years. The IRS has not offered retroactive relief, and the tax you owe for 2023 is still the tax you owe for 2023.

What rescheduling may change is how your future income gets measured when you negotiate that old debt. If your business is medical-licensed, there is a reasonable argument that ordinary operating expenses on the medical side should now count as allowable expenses in a collection potential calculation, since 280E no longer disallows them. Some practitioners are already making it.

The trap: that is a position, not a settled rule. The Mission decision, and the appeal, are about the policy as it stood. We have not seen the IRS publicly revise that manual section for medical operators, and adult-use cannabis remains on Schedule I, so any adult-use activity is still squarely inside the old treatment. If you hold both licenses, your collection potential will depend on how cleanly you can show which expenses belong to which side. That is the same split we covered in One Company, Two Tax Codes, with higher stakes attached.

The Refund Side Has Risk Too

Some operators have tried the opposite approach: amend old returns, claim the deductions 280E disallowed, and ask for money back.

Look at what happened to TerrAscend. The company received an $8.36 million refund in 2024 after amending its 2020 return to claim deductions previously disallowed under 280E. In May 2026, the federal government sued to get it back. TerrAscend’s current motion to dismiss argues procedural defects in how the government filed the suit. It does not concede the 280E issue, and it does not make the government’s underlying claim go away.

Red Flag: a refund check clearing your bank account is not the end of the story. The government can pursue an erroneous refund through litigation, and a court fight over the procedure still leaves the underlying 280E question open. If you received a refund on a 280E-based amended return, treat that cash as contested until the matter is closed. Do not build next year’s budget on it.

What To Do Before the Notices Arrive

The operators who get through collection in reasonable shape are almost never the ones with the best legal argument. They are the ones whose books let them make any argument at all.

• Get current on every filing. The IRS generally will not consider an offer in compromise if you have unfiled returns. A missing return is not a technicality. It closes the door before your numbers are even read.
• Separate your expenses by license type, starting now. If medical-side expenses can eventually count toward your ability to pay, you will have to prove which ones they are. You cannot reconstruct that split after a revenue officer asks for it.
• Keep your P&L and bank statements reconciled monthly. In Mission’s case, the IRS built its projection directly from the company’s P&L and bank statements. Whatever your statements say is what the IRS will project forward. If your books overstate margin, you are handing the IRS a larger number to collect against.
• Know your options beyond an offer. Installment agreements and currently-not-collectible status have different requirements. An offer is often the most attractive and the hardest to win.
• Reserve for contested money. Refunds from amended 280E returns, and deductions taken on unsettled positions, should sit in a reserve until the risk is resolved.
• Document everything in writing, as you go. Your allocation method, your license-by-license split, your rationale for any position you take. The person reviewing it years from now will not have been in the room. We cover what that review looks like on our audit defense page.

What this means for you: if you owe back taxes, the question isn’t whether rescheduling helps. It’s whether your books are clean enough to use whatever relief the Ninth Circuit or the IRS eventually allows.

Rescheduling Changed Your Future. It Didn’t Change Your Past.

The industry is looking ahead because the future finally looks better. Fair enough. But the IRS is still collecting on the past, using a formula built for 280E.

Rescheduling may change what you owe from here on. How clean your books are will decide what you can negotiate on everything you already owe.

Carrying federal tax debt from a 280E year, or sitting on a refund you’re not sure you get to keep? Mindtrix works exclusively with cannabis operators. We’ll get your filings current, rebuild your P&L so it reflects what your business can actually pay, separate medical and adult-use expenses in a way that holds up to review, and put your positions in writing before a revenue officer asks for them. Schedule your free assessment here.

Have you received an IRS collection notice for a 280E year? What did the first letter say? Tell us in the comments.