Christian Pot Dispensary Takes on IRS’s Refusal to Accept Business Tax Deductions

In a somewhat unconventional partnership a business is touting both cannabis and Christ.

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Our Los Angeles marijuana lawyers know non-profit status is yet another complication for medical marijuana businesses and non-profit religious organizations alike.

In this instance, tax related disputes are related to business deductions. If the tax court rules in favor of the dispensary it could help remove dispensaries from the legal no man’s land in which they now reside.

The problem is that the state of California views an entity like a non-profit dispensary as a legal business while the Internal Revenue Service really still views a business like this as drug traffickers.

An underreported twist to distinctions when it comes to legalized marijuana is the tax ramifications. Since the Internal Revenue Service views marijuana businesses as illegal businesses they are not allowed to deduct their business expenses in the same manner that any other business can.

Marijuana advocates point to this as grossly unfair – a marijuana business that operates legally under federal law should be able to make the same deductions any other legal business entity is permitted.

This means that routine deductions such as rent and payroll are not allowed due to a section of the federal tax code known (280E) which was established in 1982, more than 10 years prior to the legalization of medicinal marijuana in 1996.

Not only has the Internal Revenue Service refused to accept typical business deductions from marijuana businesses but when a business attempts to claim them the result is usually an Internal Revenue Service audit – in one such case a dispensary was forced to pay $875,000 in additional taxes.

Some pro-marijuana tax deduction rulings have crept into California courts but the widespread change that is needed has yet to occur.

A California court has allowed a certain subset of medicinal marijuana dispensaries to claim expenses stemming from its care-giving business as separate for tax purposes.

Another California case in 2012 allowed marijuana dispensaries to deduct the cost of the goods it sold, which is the cost of marijuana.

Some legislators have gotten tangentially involved in the tax fray but it appears that it will fall to the court system to clarify the application of the tax code to the marijuana industry.

The Los Angeles CANNABIS LAW Group represents growers, dispensaries, collectives, patients and those facing marijuana charges. Call us at 714-937-2050.
More Blog Entries:

Lawmakers Debate Tighter Marijuana Laws – In Colorado Too!, February 19, 2014, Los Angeles Marijuana Lawyer Blog
Dispensaries Face Obstacles to Serve Young Medical Marijuana Patients, February 17, 2014, Los Angeles Marijuana Lawyer Blog