California Medical Marijuana Dispensary Taking IRS To Court


Photo: Frankie Frost/Marin Independent Journal
Lynette Shaw of Marin Alliance for Medical Marijuana dispenses medical cannabis to a patient

​The U.S. Internal Revenue Service is thought to have begun audits on at least 12 medical marijuana dispensaries in California, under the decision that past business deductions are invalid because of a clause in the federal tax code prohibiting businesses that traffic in Schedule I or II drugs from making such deductions on their tax returns.

The move, which could bankrupt every dispensary it targets, is being fought by the Marin Alliance for Medical Marijuana, the first dispensary to receive a final audit decision from the IRS, reports Kyle Daly at The American Independent. (The IRS claims MAMM owes millions of dollars in back taxes.)
Lynette Shaw, founder and owner of MAMM, hopes to strike back before the IRS can deliver more “final determinations” to other dispensaries currently being audited.

Photo: Jeff Vendsel/Marin Independent Journal
Lynette Shaw, founder and director, is shown at the offices of MAMM, which is being audited by the IRS

​Shaw said she intends to file an appeal in U.S. Tax Court this month. There is actually a precedent, the Independent reports: In 2007, a San Francisco dispensary primarily serving terminal AIDS patients got its payment cut down to just more than one percent of what the IRS originally claimed the dispensary owed in back taxes.
If Shaw’s appeal is successful, it would virtually guarantee that neither MAMM nor any other dispensary in California, or for that matter, in other states, would have to worry about IRS audits in the future. But Shaw is going even farther than that — she’s challenging the very Schedule I classification of marijuana that has allowed the IRS to go after WAMM and other dispensaries.
“The Constitution says that all American laws shall be based upon a rational basis,” Shaw said. “I’ve got a truckload of evidence to argue that this doesn’t pass the muster of rational basis.”
It’s true that the classification of cannabis as a Schedule I substance defies all rationality. Yet there it is on Schedule I beside substances like heroin and PCP on the DEA’s list of drug classifications. Meanwhile, cocaine and methamphetamine are officially less harmful than marijuana, according to the federal government, as both of those drugs are on Schedule II.
According to the federal criteria for Schedule I drugs:
(a) The substance has a high potential for abuse
(b) The substance has no currently accepted medical use in treatment in the United States
(c) There is a lack of accepted safety for use of the substance under medical supervision
Drugs are supposed to meet all three criteria before inclusion on the Schedule I list. Yet marijuana has accepted, legal medical uses in 15 states plus the District of Columbia.
If Lynette Shaw can get a federal tax court to agree that cannabis doesn’t belong on Schedule I, a lot of other things besides the IRS’s campaign against dispensaries may come tumbling down. Drug scheduling affects much more than just IRS rules, of course, including things like mandatory minimum sentences.
If, on the other hand, a tax judge rules against her and no appellate court will overturn the decision, it could mean the end of the medical marijuana dispensary business as we know it.
Shaw insists she’s not asking for too much. “We’re not trying to end the Drug War,” she said. “We just want reclassification.”