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IRS Waging War on Legal Medical Marijuana Dispensaries?

The Internal Revenue Service admitted to targeting Tea Party groups, but what about medical marijuana providers?

According to the Huffington Post, medical marijuana dispensaries say they are facing audits and heavy tax burdens that are designed to force them out of business.

Medical marijuana is legal in 18 states and the District of Columbia. Through the application of an obscure statute, IRS Code Section 280E, pot providers often come under IRS scrutiny. The 1982 law was put in place when a drug dealer attempted to claim his yacht and weapons as business expenses.

Section 280E bans "deductions incurred in the trade or business of trafficking in controlled substances." When the sale of controlled substances, like marijuana, falls under that category, dispensaries of medical pot can’t write off the cost of rent, payroll, products, or advertising like any other small business.

"Section 280E was passed by Congress to deprive drug dealers on corners from deducting their expenses," said Henry Wykowski, a defense lawyer representing dozens of California dispensaries under audit. "The IRS is using this law in a way it was never intended to be used."

Kris Krane, principal of 4Front Advisors, a medical marijuana dispensary consulting firm, says the IRS is pushing the limits of the law in order to collect as much money as possible.

"Whether or not this is a coordinated tactic to try and shut down the industry, or send a chill through the industry, or if it's just the IRS trying to collect as much revenue as they can from easy targets, it's clearly outside the spirit and intent of the law," Krane said.

Dispensaries are shut down under the tax law three or four times more than average. Lawyers say audit back-tax assessments amount to tens of millions of dollars.

Wykowski said the IRS won't answer for its use of the tax code, saying “If you want to change it, go to Congress, not to us.”

The National Cannibis Industry Association hopes to pressure Congress into defining exemptions for marijuana dispensaries.

Rep. Earl Blumenauer, D-Oregon, plans to introduce a bill called the Small Business Tax Equity Act on June 5. The law would resolve the 280E loophole and save the now-legal billion-dollar medical marijuana industry.

Sources: Huffington Post, San Francisco Chronicle


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