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

Also, High care purchases and sells a line of recreational marijuana products for its patients and their families at its facilitys store. High care 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?

Only the cost of obtaining product is included. In other words, do not review the inventory capitalization / COGS numbers. Do not address capitalization (Code sections 263(a) or 263A).

Only primary authorities (Code and applicable Regs, cases or Rullings) are to be liisted.

Please DO NOT provide your process or any secondary sources.

Please answer the questions and fill-up the list:

1) Issues/ Observations: Note the Issue or item that the authority you are using addresses (Example: Define Taxable inome

2) List separately the primary authority that you plan to use (Example: Code Section 63)

3) Provide a brief outline of why this authority is relevant/ how you will use it in your paper (Example: The issue is presented is to determine taxable income)

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