IRS Claims Medical Marijuana Dispensary is Drug Trafficking Organization, Takes Taxes Anyway

Oct 06, 2011 280E, business, Harborside, industry, Internal Revenue Code, Internal Revenue Service, IRS, medical, oakland, tax


As part of the federal government’s escalating efforts to shut down the medical marijuana industry, the IRS is claiming that Harborside Health Center, an Oakland dispensary that is thought by many to represent the best practices in the industry, owes them roughly $2.5 million in back taxes. The reason for this is that during the audit, the IRS would not let Harborside deduct many of its business expenses.

Most of these expenses were for things that all other legitimate businesses are allowed to deduct, such as rent and payroll. They were, however, allowed to deduct the actual marijuana being given to patients. The reason for all this is Section 280E of the Internal Revenue Code, which basically allows the IRS to fully tax any group it considers a drug trafficking organization. This is mostly used to snare actual drug traffickers for tax evasion, much like the way Al Capone was finally arrested. Criminal kingpins are not known for filing taxes and reporting their illicit income.

The IRS claims that Harborside, and all other dispensaries, are criminal organizations, so they can’t make any of the deductions other businesses make. But they will still take the money. Many are worried that this will destroy the industry by making it impossible for most dispensaries to afford to stay in business.

MPP is currently pushing a pair of bills through Congress that would remove this threat to patients and providers, as well as allow banks to do business with dispensaries without fear of federal prosecution.

Please urge your representative to sponsor the Small Business Tax Equity Act of 2011 and the Small Business Banking Improvement Act of 2011.

While we’re waiting for Congress to act on these bills (and it may take a while), feel free to contact the IRS and tell them that tax-paying medical marijuana businesses are legitimate and should be treated as such. They are not drug dealers.

Here’s the number: 1-800-829-4933