I hope you saved your money if you own a medical marijuana dispensary.
Medical marijuana dispensaries that have taken federal tax deductions are about to be gut-checked by the Internal Revenue Service (IRS), thanks to a recent ruling by the U.S. Tax Court in Washington, D.C.
In Olive v. Commissioner (PDF), judges unanimously found that the owner of the Vapor Room Herbal Center, one of San Francisco’s largest and most profitable dispensaries, was not allowed to take business deductions because the business was trafficking in a controlled substance.
The tactic has been increasingly favored by the IRS since 2008, when the U.S. tax agency began conducting audits of major California dispensaries. One of the first businesses targeted by the IRS was the Martin Alliance for Medical Marijuana, which was forced to shut its doors after the IRS cited § 280E of the federal tax code, which prohibits deductions on sales of controlled substances, and demanded millions of dollars in back taxes.