IRS Can’t Stop Los Angeles Dispensaries

Los Angeles marijuana lawyers know there are many tactics that local and federal government agencies have employed to thwart the thriving existence of legal marijuana.

Los Angeles marijuana dispensaries and the attorneys who represent them, however, have persisted in the name of patients rights and the integrity of our voting populace in California – which was the first to legalize medical marijuana back in 1996.

Why we are still having to wage these battles no doubt has to do more with politics than the actual perceived dangers of marijuana. We must hope that in the end, truth and the will of the people will win out.

In the meantime, Forbes recently wrote an article addressing the issue of how the federal Internal Revenue Service is trying to squeeze lawful marijuana dispensaries in California out of business.

It’s estimated there are about 2,300 legal marijuana dispensaries operating throughout the country right now. The federal crackdown on the facilities comes down to an issue of state versus federal law. Marijuana for medicinal purposes is legal under state law, but not under federal law.

Federal lawyers have been using nearly every trick in the book – real estate law (forcing landlords to revoke their leases or face criminal charges), banking law (threatening to prosecute banks who extend loans or manage accounts for legal cannabis businesses) and local laws (with some cities banning dispensaries altogether, some under pressure from federal authorities).

So it’s really not shocking that they would also employ tax law.

What’s interesting is that the IRS is now employing a little-known, obscure provision in the tax code to target legal dispensaries. It’s Section 280E. This forbids deductions for any business that is known to be trafficking a controlled substance. The idea was to block drug dealers from claiming taxpayer money through deductions.

However, what is more often being used for today is to deny legitimate marijuana dispensaries from claiming tax deductions. Even in states like California where medical cannabis is legal, legitimate businesses are being denied their deductions.

There is one case, though, that has allowed that legal marijuana dispensaries can deduct expenses associated with all of their operations except the sale or dispensing of marijuana. That precedent was set in Californians Helping to Alleviate Medical Problems Inc. v. Commissioner.

In that decision, the court ruled that marijuana sales couldn’t be counted toward deductions BUT dispensaries are also involved in the separate business of providing care. Expenses related to that aspect of the business have been deemed legal. In that specific case, just about 10 percent of the dispensary’s premises was used to sell marijuana, so most of the rent was considered deductible.

What that means for the rest of dispensaries is that if the work you do goes beyond the actual sale – that is, counseling patients, advocacy and education – you may be eligible for more tax deductions. That also means that keeping accurate and thorough records is very important.

And of course you need to consult with an experienced Los Angeles marijuana lawyer, who can help you navigate the ins and outs of the tax code as it pertains to your operation.

The CANNABIS LAW GROUP offers experienced and aggressive representation to the medical marijuana industry in Southern California– including growers, dispensaries and collectives, patients and those facing marijuana charges. Call 949-375-4734 for a confidential consultation to discuss your rights.

Additional Resources:
Medical Marijuana Dispensaries Keep On Truckin’ Despite IRS, By Robert W. Wood, Forbes

More Blog Entries:
Orange County Marijuana Lawyers: The Fight Goes On, May 27, 2012, Los Angeles Marijuana Lawyers Blog