Facts: Highcare, Inc. is a calendar year entity that began business this year. Highcare provides nursing services to cancer patients. The services it provides are both based in traditional science and holistic medicine. To support the nursing services, Highcare purchases and dispenses medical marijuana to its patients.

Also, Highcare purchases and sells a line of recreational marijuana products for its patients and their families at its facilitys store. Highcare capitalizes only the costs associated with acquiring marijuana in its inventory costs. No other costs are capitalized into inventory. For tax purposes, Highcare's inventory capitalization and COGS are properly determined.

In Highcares state (California), selling medical and recreational marijuana is legal. This year, Highcares general financial results for each of its business lines were as follows:

Total

Nursing

Dispensary

Store

Revenue

$1,550,000

$1,000,000

$300,000

$250,000

COGS

$325,000

$0

$200,000

$125,000

Salaries

$680,000

$600,000

$50,000

$30,000

Administrative Costs

$275,000

$250,000

$20,000

$5,000

Total

$270,000

$150,000

$30,000

$90,000

Highcares management recently learned that, although medical and recreational marijuana are legal enterprises in California, they are not under federal law because marijuana is a controlled substance within the meaning of schedule I and II of the Controlled Substances Act (21 U.S.C. ch. 13 801 et seq.) . It is uncertain about how to compute its federal taxable income. Specifically, Highcare is concerned that its marijuana-related deductions, which are generally allowable under Code section 162, may be prohibited by federal law.

Issue: Based on the financial data provided, what will Highcares taxable income be for this year?

Please write the conclusion and analysis based on the facts and issue

Apply code section 63, 61, 162, and 280E

Conclusion:

Analysis: