November 8, 2012
Voters Say Yes to Marijuana, IRS Says No
Forbes: Voters Say Yes to Marijuana, IRS Says No, by Robert Wood:
A total of 18 states and the District of Columbia have legalized medical marijuana. Massachusetts just came on line after the November 6, 2012 vote. Colorado and Washington just went futher to legalize recreational use too. See Colorado, Washington First States to Legalize Recreational Pot.
But can a legal dispensary operate like a “legitimate” business? Amazingly, they can’t and are still labeled as drug traffickers. ... no matter how “legal” the states make it the IRS is federal and that means trouble. American businesses pay tax on their net not their gross income and business expenses are as American as apple pie. But Section 280E of the tax code denies deductions for any business trafficking in controlled substances. This black letter rule to stop drug dealer tax deductions also covers medical marijuana since federal law still classifies it as a controlled substance.
Prior TaxProf Blog coverage:
Tax Code May Kill Medical Marijuana Industry (Oct. 5, 2011)
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Voters who don't want the federal government telling a state what it must do went for Obama. Go figure.
Posted by: Woody | Nov 9, 2012 10:16:02 AM
The IRS (and Federal) stance just means we won't see size able growers and distributors (e.g., Philip Morris, Coors, Kaiser), but it won't stop mom & pops. Nonprofits don't need deductions and mom & pops strip out all the income as salary anyway, which they do within nonprofits. The customers can be "members". Mom & Pops won't qualify under 170(c), but 501(c) has plenty of options.
Besides, the IRS won't waste its resources the way the DOJ has been over this nonsense. I hope so anyway, maybe the IRS learned from Jeff Novitzky's war on steroids that they achieve higher returns on their investigative resources by leaving criminal contraband matters to criminal agencies (and leaving church political activities and contribution/gifts to PACs to the public and their legislators).
Posted by: Yo Gabba Gabba | Nov 9, 2012 1:09:32 PM
Is it still a controlled substance if it has no THC (the chemical component that creates the "high")? Israeli scientists and farmers have created THC-free marijuana.
Irony -- Tax Court: Gender reassignment surgery - Yes; Pain relief for the suffering - No
Posted by: tax guy | Nov 9, 2012 1:41:07 PM