Sunday, May 27, 2012

IRS Still Denies Dispensaries Deductions from Marijuana Sales, but Care Giving is Legal, Court Decides

The pressure that the feds are putting on dispensaries to close is nothing new. However, a crack may have appeared in the monolith that is federal law enforcement.

Most dispensaries are now becoming acquainted with Section 280E of the tax code. It's the piece of law that the IRS uses to deny collectives and any other business associated with medical marijuana the deductions afforded to any other businesses.

It was originally drawn up to prevent drug dealers from claiming those deductions (on the off chance they felt like paying income taxes), which the feds feel medical marijuana dispensaries are, regardless of the laws of their state.

However Forbes reports that the U.S. Tax Court has found that while any income derived from marijuana sales are covered by Section 280E, but expenses associated with caregiving are perfectly legal. In the case of Californians Helping to Alleviate Medical Problems Inc. v. Commissioner, only 10 percent of the Harborside Health Center (the dispensary that brought the suit) was dedicated to marijuana, making the other 90 percent of its rent deductible.

The article urges dispensary owners to keep records of everything.

"A large expense for a dispensary is normally inventory costs–buying product for resale. Despite the prohibition on deductions, it appears that the cost of goods sold–even marijuana–can be claimed. Again, good records are key."

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