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IRS disallows business expense deductions for pot dispensary

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IRS disallows business expense deductions for pot dispensary

Sacramento marijuana dispensary challenges IRS in federal court

SACRAMENTO, Calif. (KCRA) A local medical marijuana dispensary is facing off Monday against the Internal Revenue Service in U.S. Tax Court in San Francisco over a decision that will likely impact pot dispensaries across the country.

Canna Care is challenging an 1980s law aimed at preventing illegal drug traffickers from writing off expenses for the illegal activity, that the IRS has applied to the non-profit dispensarys taxes.

Court documents show that after three audits of the dispensary from 2006 to 2008, Canna Care owes the IRS more than $800,000 in income taxes because the dispensary was not allowed to deduct some business expenses.

They include employee (salaries), rent, electricity normal, everyday expenses are what they disallow, said Lanette Davies, Canna Care director.

However, she pointed out that that the IRS did allow her to deduct the one item that is illegal under federal law: The marijuana.

That says something is backwards. If youre going to allow what you consider to be illegal, why would you allow it on the tax form and nothing else? Davies told KCRA 3.

At issue is a 1982 statute known as 280E, that bans the deduction of expenses for trafficking in controlled substances that was originally meant to prevent drug dealers for claiming tax deductions.

The IRS has applied it to pot dispensaries.

The net effect is if the IRS is successful it would drive legitimate dispensaries underground because only the kind of people who would want to engage in illegal activity anyway will participate in dispensaries, said Michael Vitiello, a law professor at Pacific McGeorge Law School.

Vitiello said the decision from this case will not be as definitive and on-point as a Supreme Court decision, but will still have a national impact.

It will send shock waves through the industry -- people look at legal developments elsewhere, he explained.

Davies said the IRS offered to settle her case for $100,000 but she said she is refusing out of principal.

Nobody, nobody in their right mind especially when youre dealing with cannabis wants to take out a fight with the federal government, she said. But I just think its morally and ethically wrong with what theyre doing.

KCRA 3 could not reach an IRS spokesperson for comment.

A decision on the case wont be announced for another 60 days after arguments in court Monday

Read more: http://www.kcra.com/news/sacramento-marijuana-dispensary-challenges-irs-in-federal-court/24634344#ixzz2uFynMXQv

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nevada is also having problems setting up dispensaries because
the city lawyers can not give advice in violation of federal law..

they are seeking relief from the nevada state bar

nevada is going to set it up where once you sign up as a patiant at a dispensary, you can only buy from that dispensary.

they are also talking only 12 dispensary licenses total, for the whole state.

so there will be bribes involved in a crooked state like nevada...

currently in nevada you can grow your own medical pot

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Very few ever win in tax court.


If they fight this, they will lose, and it will "kill the MJ baby in its crib" all over the uS!


She should just settle for the $ 100,000!


Maybe the pot is legal under the obscure marijuana stamp tax act? Its goofy!


Not allowing expense deductibles is very unfair!

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I think oblamer will, by exec odor...


decriminalize weed

It would be the only good thing oblamer ever did


I think this is why calif will not have a "rec use" on the 2014 ballot


I still dont see where the constitution gives the feds the power to prohibit weed...


why did it require an amendment to prohibit alcohol ?

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