Pubdate: Thu, 10 Mar 2011
Source: Marin Independent Journal (CA)
Copyright: 2011 Marin Independent Journal
Author: Richard Halstead
Bookmark: (Cannabis - California)
Bookmark: (Cannabis - Medicinal)


The Internal Revenue Service has notified the Marin Alliance for 
Medical Marijuana in Fairfax that it owes millions of dollars in 
unpaid back taxes, according to the alliance's founder and director, 
Lynnette Shaw.

Shaw said the IRS audited the alliance's tax returns for 2008 and 
2009 and disallowed all of its business deductions. She said that 
although dispensaries throughout the state are being audited by the 
IRS, the alliance is the first to be told it can't deduct business expenses.

"Every dispensary in the nation, past, present and future is dead if 
this is upheld," Shaw said.

Shaw would not disclose the exact amount she is being ordered to pay 
but said, "It's a staggering sum, millions and millions." She is also 
negotiating with the state Board of Equalization regarding sales tax 
that was not paid in 2005 and 2006.

Shaw said the IRS disallowed her deductions - for buying marijuana, 
hiring employees, securing office space and more - based on section 
280E of the federal tax code, which states that no deduction shall be 
allowed for any business trafficking in controlled substances.

Under federal law, marijuana is classified as a schedule I controlled 
substance, a category of drugs not considered legitimate for medical 
use - despite voters' 1996 approval of Proposition 215, which 
legalized the use of marijuana for medical purposes in California.

Jesse Weller, an IRS spokesman, said, "We can neither confirm nor 
deny there is an examination or audit of any taxpayer, because of the 
disclosure and privacy laws." Weller declined all other comment.

Henry Wykowski, a San Francisco lawyer who represents marijuana 
dispensaries, said, "I'm personally involved in over a dozen audit 
cases now, and I've been consulted on a number of others." Wykowski 
said all of the audits are in California.

Steve DeAngelo, director of the Harborside Health Center in Oakland, 
one of the largest dispensaries in the nation, said the IRS began 
auditing Harborside's books a year ago.

DeAngelo said section 280E "is the major issue in the Haborside audit."

"If the IRS were to aggressively interpret 280E, it has the potential 
to close down every medical cannabis dispensary in the United 
States," DeAngelo said. "If you can't deduct your rent, your payroll, 
licensing fees, et cetera ... you're going to be taxed out of existence."

Shaw said previous legal battles with the federal government have 
prepared her for this challenge. She said she plans to mount a legal 
defense based on the reasoning that there is no rational basis for 
classifying marijuana as a schedule I drug.

Wykowski said a U.S. Tax Court judge ruled in 2007 that dispensaries 
can legally deduct expenses associated with all activities except for 
dispensing marijuana. Wykowski worked on the case, called 
"Californians Helping to Alleviate Medical Problems Inc. v. 
Commissioner of Internal Revenue."

For example, Wykowski said people who work at dispensaries often 
advise people on which type of marijuana will best treat their 
medical problem. He said this constitutes counseling, not 
trafficking, so deducting at least a portion of that employee's 
salary should be allowed.

DeAngelo said, "280E should not apply to us. It was designed for 
cocaine kingpins, not nonprofit community service organizations. But 
if it is applied to us, the IRS needs to take into account that the 
vast bulk of what we do is education, counseling and advocacy, not 
the actual handling of cannabis."
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MAP posted-by: Jay Bergstrom