IRS Just Says No To Medical Marijuana Deductions
function share_this(num) {
 tit=encodeURIComponent('IRS Just Says No To Medical Marijuana Deductions');
 site = new Array(5);
 return false;

IRS Just Says No To Medical Marijuana Deductions
Posted by CN Staff on October 06, 2011 at 18:57:49 PT
By Kelly Phillips Erb, Contributor 
Source: Forbes
USA -- Our culture is fascinated with marijuana. We speak in hushed tones about cocaine and other “hard” drugs but we’re pretty outspoken about marijuana. It’s even become a question bandied about during presidential campaigns with former President Bill Clinton famously saying that he “didn’t inhale and never tried inhaling again” prompting one MTV viewer to ask during a 2000 town hall style meeting, “If you had it to do over again, would you inhale?” (For the record, the answer was: “Sure, if I could, I tried before.”)
Perhaps part of the fascination is that the drug is widely available – and routinely used – even though it’s not legal. Well, sort of not legal.As of this writing, sixteen states and D.C. have legalized marijuana for medical purposes. They are: Alaska, Arizona, California, Colorado, Delaware, Hawaii, Maine, Michigan, Montana, Nevada, New Jersey, New Mexico, Oregon, Rhode Island, Vermont and Washington.The first state to legalize marijuana for medical purposes was California in 1996. Just over ten years later, then Governor of California Arnold Schwarzenegger made international headlines when he said, reflecting the thoughts of many:“That is not a drug. It’s a leaf.But no matter what Schwarzenegger or others think, marijuana is still illegal on the federal level. That includes marijuana prescribed for medical purposes. That’s because, under federal law, marijuana is still classed as a Schedule I drug. This means that it cannot actually be prescribed (to get it in most states where it’s legal, you need a note, not a prescription, from a doctor).So, marijuana is legal for some purposes in some states but largely remains illegal across the country. That makes taxing it tricky. In fact, it was the taxation of marijuana in the 1930s which lead to the criminalization of the drug in the first place.In 2009, Oakland gave it a try: it became the first city in the country to tax marijuana. The tax, which is imposed on the dispensaries which are licensed to sell medical marijuana, is still controversial: taxing a product is often perceived as the government’s tacit approval of the sale of the product. But only at the state level.The feds tax nearly everything, legal or not. The IRS requires that you report “all income from whatever source derived” – unless otherwise excepted. That includes all illegal activities: from illegal gambling to prostitution to kickbacks. The IRS actually has a program, the Illegal Source Financial Crimes Program, that attempts to enforce taxation rules on income obtained through illegal operations which would otherwise be part of the “untaxed underground economy.”So Harborside Health Center dutifully reported its income. The San Francisco area medical marijuana dispensary filed and paid taxes on its estimated $22 million annual income.And then, according to Harborside’s CEO, Steve Deangelo, came the audit. I spoke to Deangelo today and he explained that initially, Harborside received an examination notice from IRS for two years, 2007 and 2008. Deangelo said that Harborside cooperated with the audit, even giving the auditor a tour of the facilities. The IRS accepted the company’s financial records with no additional questions. And then, the IRS sent the dispensary a $2.4 million bill.So what did Harborside do wrong? Hide income? Claim bogus expenses? Underreport compensation to executives?No, no and no.Harborside claimed expenses. Legitimate business expenses. Just not legal expenses.You see, under the Tax Code, expenses connected with the illegal sale of drugs are disallowed:“§ 280E. Expenditures in connection with the illegal sale of drugs. No deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any State in which such trade or business is conducted.That section of the Tax Code was meant to target illegal drug traffickers, giving the feds more ammo to fight the war on drugs. It wasn’t intended to hit dispensaries. And yet, it did.With one fell swoop, IRS disallowed expenses for Harborside relating to running its business, including rent, payroll and insurance. Those expenses account for roughly 40% of the company’s net income, according to Deangelo.What about the cost of the actual illegal product, the marijuana? Interestingly, that was okay. For purposes of figuring the tax, it was considered the cost of goods sold and therefore properly an adjustment to income – not a deduction or credit subject to §280E. The IRS allowed it.Harborside has the right to appeal the finding. I assumed that they would, especially as the company has already been advised to expect additional examinations for 2009 and 2010. Deangelo confirmed that Harborside will appeal in some fashion explaining that he feels that has no choice. The company is organized as a not-for-profit corporation in California (they, of course, couldn’t have applied to IRS for tax exempt status because of federal drug laws) and Deangelo says that, after costs, there’s no additional money to pay taxes. Especially not a $2.4 million tax bill. “We have no choice but to fight this assessment,” he told me. “Go out of business or fight the assessment.”He sounded resigned so I asked him whether he had expected a fight. Deangelo hesitated before giving me a yes and no answer. He didn’t expect a hefty tax bill, that much was clear. But the attention? That wasn’t a surprise. Since Harborside opened its doors, it has drawn attention to itself: the company deliberately set out to be the “gold standard” in the industry. And it happened. Harborside is now considered the leading dispensary of medical marijuana in the world. But popularity carries with it a price. Deangelo said he always knew that, by being visible, it would increase the likelihood of some kind of negative attention from the federal government.Really? I found that surprising since I was under the impression that the current administration had no interest in usurping state laws on the issue of legality of medical marijuana. That had been the case, Deangelo concurred, referring me to the often cited Ogden Memo (downloads as a pdf), issued in 2009 by Deputy Attorney General David Ogden of the Department of Justice.But the administration switched course about six to nine months ago, according to Deangelo. He says that since that time, it has been open season on licensed dispensaries with pressure being exerted by a number of federal agencies. Deangelo claims that Harborside had its bank accounts closed on four occasions after local banks were threatened with sanctions from the Treasury Department if they continued to service his company.I did a little digging and found a Department of Justice memo from June of this year, which seems to indicate a shift in policy although carefully stating that “[t]he Department’s view of the efficient use of limited federal resources as articulated in the Ogden Memorandum has not changed.” However, the memo goes on to say that the Department revisited its position based on an increase in the popularity of medical marijuana. The memo notes that:“Persons who are in the business of cultivating, selling or distributing marijuana, and those who knowingly facilitate such activities, are in violation of the Controlled Substances Act, regardless of state law… Those who engage in transactions involving the proceeds of such activity may also be in violation of federal money laundering statutes and other federal financial laws.And that clearly includes tax laws.But why Harborside? And why now? For their part, the IRS has no comment on the matter, which is standard for non-criminal matters involving specific taxpayers.Even though they’re not talking, the IRS has opened up a debate about the future of medical marijuana in this country. It’s interesting because both political parties have something to lose in this one. If Congress moves to de-criminalize marijuana on a federal level, they run the risk of being labeled as drug-friendly and soft on crime. On the other hand, enforcing the federal laws over the clear wishes of the individual states can be viewed as trampling on states’ rights (go back and look at the list of states again).But let’s put the political playground aside for a minute and look at the dollars. The State of Medical Marijuana Markets 2011 report, also called the “See Change Report”, found that legal medical marijuana sales are a $1.7 billion industry. Those are huge dollars. Currently, those dollars are being reported as part of the mainstream economy. If, as Deangelo believes, the federal government is attempting to put an end to legal medical marijuana sales, where will those dollars go? Underground? Street criminals? Mexican cartels? I don’t get it.Deangelo doesn’t either. And he says he’s not alone. He says that the response that he’s received as a result of the audit has been 100% positive. He’s even heard from folks outside of the industry who have expressed outrage at IRS, wondering, What could they possibly be thinking?I don’t know either. And not because I’m convinced that it’s the wrong position exactly. It is, after all, the current law and IRS is charged with enforcing the current law. Maybe the law needs to change (efforts are pending that would do that very thing). But considering how politically charged the bigger picture is, you have to wonder why the IRS would bother picking a fight over a fairly inconspicuous deductions clause. Deangelo thinks he knows: “The IRS,” he says, “wants to tax us out of existence.” Source: Forbes Magazine (US)Author: Kelly Phillips Erb, Contributor Published: October 6, 2011Copyright: 2011 Forbes Inc.Contact: readers forbes.comWebsite: Medical Marijuana Archives 
Home Comment Email Register Recent Comments Help 

Comment #6 posted by The GCW on October 07, 2011 at 05:00:02 PT
Cal - Col news.
Might this help the push to RE-legalize in Cal etc?-0-US CA: Crackdown on California dispensaries planned; Colorado shops watch development closely 
Pubdate: 7 Oct. 2011
Source: Denver Post (CO)
Author: Denver Post staff and wire reportsCrackdown on California dispensaries planned; Colorado shops watch development closelyFederal officials today are expected to announce a crackdown on medical-marijuana dispensaries in California, the latest escalation in the ongoing conflict between the U.S. government and the nation's burgeoning medical-marijuana industry.This week, federal prosecutors sent letters to several dispensaries in California, warning the stores that they must shut down in 45 days or face criminal charges and confiscation of their property even if they are operating legally under the state's 15-year-old medical-marijuana law.Cont.
[ Post Comment ]

Comment #5 posted by greenmed on October 07, 2011 at 03:48:02 PT
John Tyler
Here you go...Part 1: 2: miss HBO... the DVD should be a keeper when it becomes available.
[ Post Comment ]

Comment #4 posted by The GCW on October 06, 2011 at 23:39:56 PT
Oh, Minn. not Canada
Even better, it's Minnesota
[ Post Comment ]

Comment #3 posted by The GCW on October 06, 2011 at 23:38:04 PT
Interesting noteworthy news from Canada
Minnesota: Judge Grants Rastafarian Exemption From Probation Drug TestingPosted by jsnsoc8 ⋅ October 3, 2011 ⋅ 1 Comment Filed Under Exemption, marijuana, Probation, Rastafari, Urinary Analysis For the past 18 months, Minnesotan Jamison Arend has been openly smoking cannabis daily — with a judge’s approval. Jamison, a licensed Rastafarian Minister, was sentenced to five years probation in March of 2010 after an altercation at his home. During sentencing, Judge Judith Tilsen handed down a groundbreaking exemption to the State’s probation drug testing laws: “[T]he defense has proven a colorable claim of religious right to ceremonial use of cannibus, otherwise known as marijuana. Ceremonial use is intermittent use, but because of our chemistry and how we do UAs, it would seem to me that even with limited ceremonial use that a UA would come up dirty on a regular basis. I’m specifically not ordering that Mr. Arend abstain from the use of marijuana and I’m specifically not authorizing UAs to defendant for marijuana. If probation is concerned about use of other illegal substances, probation may then perform UAs for other illegal substances.” –Judge Tilsen’s ruling (see the full ruling here on WeedPress)
[ Post Comment ]

Comment #2 posted by The GCW on October 06, 2011 at 23:21:59 PT
Colorado news.
US CO: Marijuana activist sues Colorado in federal court Webpage: Pubdate: 6 Oct. 2011Source: Denver Post (CO) Author: John IngoldMarijuana activist sues Colorado in federal courtSay this about marijuana activist and cannabis spiritualist Brandon Baker: The guy is an optimistic fellow.Last week, Baker — a medical-marijuana patient and the founder of a cannabis church called Greenfaith Ministry — filed suit against the state of Colorado, arguing that many of the state’s medical-marijuana laws are illegal. That isn’t so surprising, given that other cannabis advocates have done the same. What is surprising is the venue Baker chose to file his complaint.The lawsuit (PDF) is filed in federal court, an arena in which all marijuana use and distribution is as legal as a monkey knife fight.Baker is arguing that Colorado’s laws regulating medical-marijuana dispensaries — and allowing local governments to ban the businesses altogether — are an unconstitutional violation of medical-marijuana patients’ life and liberty. Baker, who is representing himself in the lawsuit, writes:CONT.
[ Post Comment ]

Comment #1 posted by John Tyler on October 06, 2011 at 21:38:36 PT
off topic Living in the Material World
The George Harrison movie “Living in the Material World” was shown last night and tonight on HBO. Usually something like this is replayed, but I can’t find a listing. All I can find is that it will be replayed later in October. If anyone sees a listing could you post it? Thanks. 
[ Post Comment ]

Post Comment