Sue, a CPA who is currently taking a Masters in Taxation program, uncovered proof – proof I tell you – that the federal government deliberately stifles the ability of some small businesses to get ahead.
From the Internal Revenue Code.
SEC. 280E Expenditures in connection with the illegal sale of drugs
No deduction or credit shall be allowed for [any business that] consists of trafficking in controlled substances.
However, you can get a deduction for cost of goods sold from trafficking in drugs to “preclude possible challenges on constitutional grounds” (Joint Committee Report on P.I. 97-248 .25) – assuming drug dealers wanted to risk filing at all then have to explain where the income came from.