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 th…