IRS Auditing California Medical Marijuana Dispensaries

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Photo: Eric Wolfe
Steve DeAngelo, executive director of Harborside Health Center, Oakland’s largest medical marijuana dispensary, looks over a marijuana display case

‚ÄčThe U.S. Internal Revenue Service is auditing medical marijuana dispensaries in California, with advocates calling for a change in federal tax laws.

The sale of medical marijuana from nonprofit dispensaries is legal under California law, but possession, cultivation or sale of cannabis for any purpose is illegal under federal law. Patient collectives in California say there is a problem because of the way they are being treated by the IRS, reports CNN.
The problem is federal tax code 280-E, which does not allow “drug trafficking organizations” to deduct business expenses.
“If 280-E were applied strictly, we would not be allowed to deduct our rent, our payroll or any of the other normal and usual expenses that other businesses deduct,” said Steve DeAngelo of Harborside Health Center, one of the biggest Bay Area dispensaries.

Attorney Henry Wykowski, who represents some dispensaries which are being audited, said 280-E was created in the 1980s to go after drug lords, and needs updating.
“What the California dispensaries are engaged in is not trafficking,” Wykowski said. “They’re engaged in a legal activity that benefits their patients.”
Several Congress members have asked the IRS to allow dispensaries to deduct business expenses and not treat the organizations as if they were drug traffickers.
“I hope that what’s going on is that the IRS is making a good faith attempt to understand our industry and to tax us like any other business would be taxed,” DeAngelo said. “And I’m in support of that. We want to pay our fair share of taxes.”
DeAngelo said he welcomed the audit, which he said will advance the cannabis industry.
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