Tax Court limits section 199A W-2 wage cap when section 280E disallows deductions
Savage v. Commissioner, No. 21606-22, 165 T.C. No. 5, 2025 BL 323936, 2025 Us Tax CT Lexis 2135 (Sept. 11, 2025), Court Opinion
On September 11, 2025, the U.S. Tax Court decided Savage v. Commissioner, 165 T.C. No. 5, holding that wages disallowed under section 280E do not count as “W-2 wages” for the section 199A limitation.
Shareholders of S corporations operating cannabis businesses claimed section 199A deductions using total W-2 wages reported on Forms W-2.
The IRS limited the wage factor to only the deductible portion after section 280E, and the court agreed with the IRS.
Why It Matters
The ruling ties the section 199A W-2 wage cap to deductible wage expense. For businesses subject to section 280E, the decision can reduce the available 199A deduction even when employees were paid.
Key Facts
Parties: Petitioners Ayla A. Savage and Patricia A. Torres, shareholders of three S corporations.
Businesses: Tru Greenthumb, Inc., and Fillabong, Inc., engaged in cannabis sales and were subject to section 280E. Fillabong and Glass, Inc. was not subject to section 280E.
Years: 2018 and 2019.
Issue: Whether “W-2 wages” under s…
