IRS Targets Medical Marijuana Businesses

Thursday, 30 May 2013 12:25 PM

By Melanie Batley

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The IRS has been systematically targeting legal medical marijuana businesses to pay more taxes using an obscure statute originally intended for illegal drug trafficking.

According to The Huffington Post, the Treasury Department is now applying Section 280E of the tax code, which disallows "deductions incurred in the trade or business of trafficking in controlled substances," to medical marijuana businesses.

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"Section 280E was passed by Congress to deprive drug dealers on corners from deducting their expenses," Henry Wykowski, a defense lawyer who represents dozens of dispensaries under audit in California, told The Huffington Post. "The IRS is using this law in a way it was never intended to be used." As a result, marijuana companies would be forced to pay higher taxes and could be run out of business.

But when asked about the agency's targeting of medical marijuana dispensaries, IRS spokesman Bruce Friedland pointed to a 2010 memo the IRS sent to members of Congress stating that "neither section 280E nor the Controlled Substances Act makes exception for medically necessary marijuana."

"It's not as shocking as a SWAT team raiding the [medical cannabis] facilities," said Aaron Smith, executive director of the National Cannabis Industry Association. But he told the Huffington Post IRS audits have become a silent killer for the industry.

"Attacking state-legal businesses is extremely unpopular, but in doing so through financial means, they're able to undermine state medical marijuana laws without drawing as much ire from the voters," Smith said.

He added, "The auditing of dispensaries by the IRS is unfair and unreasonable and should be of concern to everybody. If they can do it to one group, they can do it to any group."

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