Although California cannabis business attorneys know significant strides have been made with regard to legitimization of California’s marijuana industry, a ruling by the U.S. Tax Court underscored once again that until there are significant changes at the federal level, marijuana businesses are still illegal drug-smugglers under the eyes of the law.
In Harborside Health Center v. Commissioner of Internal Revenue, what is admittedly one of the largest marijuana dispensaries in California – and possibly the U.S. – requested the usual tax deductions that any legitimate business owner might seek. It also sought to be treated just like any other corporation because it abides the law in California, as our California cannabis business lawyers know many such distributors in the state do, and federal prosecutors opted not to take any type of civil forfeiture action against the firm.
The IRS, however, sees it much differently. In the eyes of federal law, as long as the U.S. Controlled Substances Act remains in place (designating marijuana as a Schedule I narcotic), the IRS sees Harborside (and presumably others like it) nothing more than a large drug trafficking ring, not entitled to those deductions or even allowed to capitalize indirect costs into its inventory, and further subject to potentially millions of dollars in penalties for taking several contrary positions on tax returns from 2007 through 2012. Continue reading